AS FILED WITH SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 15, 1999.
REGISTRATION STATEMENT NO. 333-87781
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BAY NATIONAL CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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MARYLAND 6021 52-2176710
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(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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2328 WEST JOPPA ROAD
BALTIMORE, MARYLAND 21093
410/494-2580
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL
PLACE OF BUSINESS)
COPIES TO:
HUGH W. MOHLER, PRESIDENT KENNETH B. ABEL, ESQUIRE
Bay National Corporation FRANK C. BONAVENTURE, JR., ESQUIRE
2328 West Joppa Road Ober, Kaler, Grimes & Shriver
Baltimore, Maryland 21093 A Professional Corporation
410/494-2580 120 E. Baltimore Street
Baltimore, Maryland 21202
410/347-7394
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1999
900,000 SHARES (MINIMUM)
1,500,000 SHARES (MAXIMUM)
[GRAPHIC OMITTED]
COMMON STOCK
$10.00 PER SHARE
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This is an initial public offering of shares of common stock of Bay
National Corporation, and no public market currently exists for our common
stock. We are offering these shares to fund the start-up of a new national
bank. The offering price will be $10.00 per share. We will not apply for
listing of the common stock on any stock exchange or on The Nasdaq Stock
Market.
Because we are selling these shares on a best efforts, minimum/maximum
basis, we will not sell any shares unless we receive subscriptions for at least
900,000 shares. Until we receive subscriptions for 900,000 shares, investors'
money will be deposited in an escrow account with Brown Brothers Harriman & Co.
The minimum share purchase is 1,000 shares, although we may permit smaller
purchases at our discretion. This offering will end on January 31, 2000, or
earlier if we sell all of the shares before that date. In addition, we have the
option to extend the offering until April 30, 2000. We will not extend the
offering beyond April 30, 2000.
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INVESTING IN THE COMMON STOCK INVOLVES SUBSTANTIAL RISK. YOU SHOULD READ
CAREFULLY THE SECTION CALLED "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS
PROSPECTUS.
We will not engage a broker-dealer to sell the common stock in this
offering. Therefore, we will receive all of the offering proceeds without
deducting any commissions or fees.
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PER TOTAL TOTAL
SHARE MINIMUM MAXIMUM
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Public Offering Price ........................ $ 10.00 $9,000,000 $15,000,000
Proceeds to Bay National Corporation ......... $ 10.00 $9,000,000 $15,000,000
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THE COMMON STOCK DOES NOT REPRESENT A DEPOSIT ACCOUNT OR OTHER OBLIGATION
OF OUR PROPOSED BANKING SUBSIDIARY. THE COMMON STOCK IS NOT AND WILL NOT BE
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1999.
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PROSPECTUS SUMMARY
BECAUSE THIS IS A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT
MAY BE IMPORTANT TO YOU. YOU SHOULD READ CAREFULLY THE ENTIRE PROSPECTUS,
INCLUDING THE INFORMATION UNDER "RISK FACTORS," BEFORE MAKING ANY DECISION TO
BUY OUR COMMON STOCK.
BAY NATIONAL CORPORATION AND BAY NATIONAL BANK
Bay National Corporation is a new company that proposes to operate as a
bank holding company. Subject to regulatory approvals, we will use at least
$9,000,000 of the net proceeds of this offering and our organizational offering
to purchase all of the shares of the common stock of a proposed
federally-chartered commercial bank to be named Bay National Bank.
A group of individuals active in business, professional, banking,
financial and charitable activities in the Baltimore, Maryland metropolitan
area and the Eastern Shore of Maryland are organizing Bay National Bank because
they believe that the banking needs of certain segments of these communities
are not being served adequately by existing banks. In particular, Bay National
Bank will emphasize meeting the banking needs of small and mid-sized
businesses, the owners of these businesses and their employees, business
professionals and high net worth individuals. Our senior officers have years of
experience in the financial services industry, and our directors are business
and community leaders in the markets we want to serve.
We anticipate that Bay National Bank will open in the first or second
quarter of 2000, if we obtain the necessary regulatory approvals, although we
may encounter any number of delays. The main office of Bay National Corporation
and Bay National Bank is located at 2328 West Joppa Road, Baltimore, Maryland
21093, and our telephone number is (410) 494-2580. In addition, Bay National
Bank will establish a branch office located at 109 Poplar Hill Avenue,
Salisbury, Maryland 21801.
We anticipate that commercial business and commercial real estate loans
for owner-occupied properties will be Bay National Bank's primary loan
products. Bay National Bank also will offer its customers complementary banking
and financial services, such as insurance and investment advice, through
relationships with strategic partners. We intend to distinguish ourselves from
our competitors through personal service and prompt decision making. See
"Proposed Business of Bay National Corporation" and "Proposed Business of Bay
National Bank" for more information about us, our proposed banking subsidiary
and our business plans.
THE OFFERING
Shares Offered..................... Minimum of 900,000 and maximum of
1,500,000 shares of common stock. We must
receive acceptable subscriptions for a
minimum of 900,000 shares before we will
sell any shares in this offering.
Subscription Price................. $10.00 per share.
Termination Date................... January 31, 2000, unless we terminate
the offering earlier or extend it to a
date not later than April 30, 2000.
Minimum Subscription............... 1,000 shares ($10,000), although we may
permit smaller subscriptions at our
discretion.
Maximum Subscription............... Twenty percent (20%) of the total number
of shares sold in the offering. If an
entity will own five percent (5%) or more
or an individual will own ten percent
(10%) or more of the common stock
outstanding after the offering, the entity
or individual must file certain
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information or applications with bank
regulatory agencies prior to purchasing
shares in the offering. We may reduce or
reject, in whole or in part, any
subscription at our sole discretion. See
"The Offering."
Gross Proceeds of the Offering..... $9,000,000 if the minimum number of
shares are subscribed. $15,000,000 if the
maximum number of shares are subscribed.
Use of Proceeds.................... We will use at least $9,000,000 of the
net proceeds of this offering and our
organizational offering to purchase all of
the shares of common stock of Bay National
Bank. If we do not contribute additional
net proceeds to Bay National Bank, we will
invest those funds in insured bank
deposits and/or short-term U.S. government
and agency securities until we use those
funds for corporate purposes or to make
further contributions to Bay National
Bank's capital.
Bay National Bank will spend the funds
received from Bay National Corporation to
pay certain organizational and operating
costs, to furnish and equip facilities
for Bay National Bank and for working
capital and general corporate purposes of
Bay National Bank. See "Use of Proceeds."
RISK FACTORS
An investment in the common stock involves substantial risk. You should
carefully read the section called "Risk Factors."
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RISK FACTORS
An investment in the common stock involves substantial risks. You should
carefully read the following, together with the other information in this
prospectus, before making a decision to purchase the common stock.
WE HAVE NO OPERATING HISTORY UPON WHICH TO EVALUATE OUR FUTURE SUCCESS,
AND WE DO NOT EXPECT TO BE PROFITABLE INITIALLY. Bay National Corporation and
Bay National Bank are in the process of organization and neither has any prior
operating history. Our profitability will depend on the results of operations
of our principal asset, Bay National Bank. We expect that Bay National Bank
will incur operating losses during its initial years of operation and may not
achieve profitability, if at all, for at least two years. If we decide to open
additional offices, that decision may further delay profitability because of
the increased expenses of expansion and because the new offices may not enhance
our results of operations as anticipated.
IF OUR REGULATORY APPROVALS ARE DELAYED OR DENIED, YOU COULD LOSE YOUR
INVESTMENT. If offering proceeds are released from escrow but Bay National Bank
fails to receive final regulatory approvals or does not open for any other
reason, we intend to propose that the stockholders approve a plan to liquidate
and dissolve Bay National Corporation. If Bay National Corporation is
dissolved, its net assets (generally consisting of the amounts received in this
offering and amounts received in our organizational offering, plus any interest
earned on those amounts, less the amount of all costs and expenses incurred by
Bay National Corporation) would be distributed to stockholders. The amounts
distributed in liquidation to stockholders may be substantially less than the
amount the stockholders paid for their shares of stock. See "The Offering" for
more information about the effect of a dissolution.
WE WILL DEPEND HEAVILY ON OUR KEY PERSONNEL, INCLUDING MR. HUGH W. MOHLER,
MR. JOHN S. DIPIETRO AND MR. THOMAS M. NEALE, AND OUR BUSINESS WOULD SUFFER IF
SOMETHING WERE TO HAPPEN TO ANY OF THESE OFFICERS OR IF ANY OF THEM WERE TO
LEAVE. Mr. Mohler, Mr. DiPietro and Mr. Neale will be the senior officers of
Bay National Bank. If any of these individuals were to leave for any reason,
our business would suffer because they have banking experience and
relationships with potential clients that would not be easy to replace. In
addition, because our business will be relationship driven, the loss of an
employee who has primary contact with one or more of our clients could cause us
to lose those clients' business, possibly resulting in a decline in our
revenues.
OUR LENDING STRATEGY INVOLVES RISKS RESULTING FROM OUR CHOICE OF LOAN
PORTFOLIO. We expect that Bay National Bank's loan portfolio will be made up
largely of commercial business loans and commercial real estate loans for
owner-occupied properties. Bay National Bank will also offer construction
loans, consumer loans and mortgage loans for owner-occupied residential
properties, although we expect that most of the residential mortgage loans will
be sold in the secondary market. Commercial business and commercial real estate
loans generally carry a higher degree of credit risk than do residential
mortgage loans because of several factors including larger loan balances,
dependence on the successful operation of a business or a project for
repayment, or loan terms with a balloon payment rather than full amortization
over the loan term. See "Proposed Business of Bay National Bank -- Loan
Portfolio" for more information about our proposed loan portfolio and the
associated lending risks.
IF WE RAISE ONLY THE MINIMUM OFFERING PROCEEDS, WE WILL BE ABLE TO OPEN BAY
NATIONAL BANK, BUT WE WILL NOT BE ABLE TO GROW AS QUICKLY AS WE COULD IF WE
RAISE THE MAXIMUM OFFERING PROCEEDS. We will be able to open Bay National Bank
if we raise the minimum offering proceeds, but we will not have as much capital
to use for making loans as we would if the maximum offering is sold. If our
ability to fund loans is so limited, we will not be able to be as profitable or
grow as quickly as we could if we had more capital. See "Proposed Business of
Bay National Bank" and "Use of Proceeds."
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OUR LENDING LIMIT MAY LIMIT OUR GROWTH. We will be limited in the amount
we can loan to a single borrower by the amount of Bay National Bank's capital.
Specifically, under current law, we may lend up to 15% of Bay National Bank's
unimpaired capital and surplus to any one borrower. Furthermore, until Bay
National Bank is profitable, our capital will decrease which will result in a
decrease to our lending limit. Our lending limit will be significantly less
than that of many of our competitors and may discourage potential borrowers who
have credit needs in excess of our lending limit to do business with us. We
intend to accommodate larger loans by selling participations in those loans to
other financial institutions, but this strategy may not succeed.
BAY NATIONAL BANK WILL FACE SUBSTANTIAL COMPETITION WHICH COULD ADVERSELY
AFFECT OUR ABILITY TO ATTRACT DEPOSITORS AND BORROWERS. Bay National Bank will
operate in a competitive market for financial services and will face intense
competition from other financial institutions both in making loans and in
attracting deposits. Many of these financial institutions have been in business
for many years, are significantly larger, have established customer bases, have
greater financial resources and lending limits than will Bay National Bank, and
are able to offer certain services that Bay National Bank will not be able to
offer. If we cannot attract deposits and make loans at a sufficient level, our
operating results will suffer, as will our opportunities for growth. See
"Proposed Business of Bay National Bank -- Competition" for more information
about competition in our market area.
THE EXERCISE OF WARRANTS AND STOCK OPTIONS WILL CAUSE DILUTION AND MAY
ADVERSELY AFFECT THE VALUE OF THE COMMON STOCK. We have issued to purchasers in
the organizational offering warrants to purchase one share of common stock at
$10.00 per share for every two shares that they purchased in the organizational
offering. Because 112,500 shares of common stock were purchased in the
organizational offering, we issued warrants to purchase 56,250 shares of common
stock. In addition, after the offering, we will adopt a stock option plan which
will permit us to grant options to our officers, directors and employees. Under
the plan, we intend to grant options to Messrs. Mohler, DiPietro and Neale to
purchase an aggregate of 6% of the shares of common stock outstanding after the
offering at an exercise price of $10.00 per share. The exercise of warrants or
options would dilute your ownership interest in Bay National Corporation. See
"Certain Transactions" and "Management -- Stock Option Plans" for more
information about the warrants and options.
BECAUSE BAY NATIONAL CORPORATION MANAGEMENT AND THEIR AFFILIATES MAY HAVE
THE POWER TO BLOCK STOCKHOLDER APPROVALS OF TAKEOVER TRANSACTIONS, STOCKHOLDERS
MAY NOT HAVE THE OPPORTUNITY TO RECEIVE A PREMIUM FOR THEIR SHARES IF OFFERED
AS PART OF SUCH A TRANSACTION. Directors and officers of Bay National
Corporation have indicated their intention to purchase approximately 100,000
shares in the offering. The shares purchased in the offering, together with
shares of common stock currently owned by the directors and officers, would
result in the directors and officers owning approximately 17.53% of the shares
if the minimum number of shares is sold and approximately 11.01% of the shares
if the maximum number of shares is sold. Directors and officers or persons
related or affiliated with them may purchase additional shares in the offering
if necessary to permit Bay National Corporation to complete the minimum
offering of 900,000 shares, and they may purchase additional shares even if Bay
National Corporation sells the minimum offering. In addition, they may purchase
shares upon the exercise of warrants or options which have or may be granted to
them. If more than 20% of the shares outstanding after the offering are held by
directors, officers and their affiliates, then this group could, by voting
against a proposal submitted to stockholders, block the approval of any
proposal which requires the affirmative vote of 80% of the stockholders. Those
proposals include certain business combinations and charter amendments. See
"Description of Capital Stock" for more information about stockholder voting
and other charter provisions.
BECAUSE PROVISIONS OF OUR CHARTER AND BYLAWS MAY HAVE THE EFFECT OF MAKING
IT DIFFICULT FOR EXISTING STOCKHOLDERS OR AN ACQUIROR OF OUR STOCK TO REMOVE
EXISTING MANAGEMENT, STOCKHOLDERS MAY NOT BE ABLE TO REMOVE DIRECTORS WITH WHOM
THEY DISAGREE AND MAY NOT HAVE THE OPPORTUNITY TO RECEIVE A PREMIUM FOR THEIR
SHARES AS PART OF A TAKEOVER TRANSACTION. Our charter and bylaws provide that at
the first annual meeting of stockholders, the directors will be divided into
three classes with each director, after an initial phase in period, serving for
a period of three years. Our charter and bylaws also provide that a director may
only be removed by the affirmative vote of 80% of the votes entitled to be cast,
and Maryland law provides that our directors may only be removed for
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cause. As a result of these provisions, stockholders would not be able to remove
existing management even if the stockholders were dissatisfied with the conduct
of management and acquirors of more than a majority of Bay National
Corporation's common stock would not be able to replace existing management with
their own nominees.
WE MAY NOT BE SUCCESSFUL IN ESTABLISHING A NEW BANK. As a newly organized
institution we will rely or have relied on our officers and directors to locate
and establish appropriate facilities for Bay National Bank, hire staff, develop
and implement marketing and business development strategies and identify and
evaluate potential lines of business in addition to Bay National Bank's core
commercial banking functions. The Board of Directors and officers will have
substantial discretion in these matters, and we cannot guarantee that they will
be successful in establishing a new bank in a competitive market.
BECAUSE WE HAVE NOT YET IDENTIFIED A SPECIFIC PURPOSE FOR A LARGE PORTION
OF THE OFFERING PROCEEDS AND BECAUSE THE BOARD OF DIRECTORS WILL HAVE BROAD
DISCRETION OVER THE USE OF PROCEEDS, THE BOARD OF DIRECTORS MAY USE THE PROCEEDS
IN A MANNER THAT DOES NOT MAXIMIZE THE INVESTORS' INVESTMENT. Over 90% of the
$9,000,000 of offering proceeds that will be used to capitalize Bay National
Bank has been earmarked to fund lending activities, to provide working capital
for expansion and for general corporate purposes. In addition, approximately
5.62% of the minimum offering proceeds or approximately 41.1% of the maximum
offering proceeds will be retained by Bay National Corporation after Bay
National Bank is capitalized, but the Board has not at this time identified any
specific purposes for those funds. See "Use of Proceeds." Therefore, the
directors of Bay National Corporation and of Bay National Bank will have broad
discretion over the use of funds and investors will not have more specific
information about the way those funds will be allocated.
GOVERNMENT REGULATION COULD RESTRICT OUR GROWTH OR CAUSE US TO INCUR
HIGHER COSTS. Bay National Corporation and Bay National Bank will operate in a
highly regulated environment and will be subject to examination, supervision
and comprehensive regulation by several federal and state regulatory agencies.
Banking regulations, designed primarily for the safety of depositors, may limit
the growth of Bay National Bank and the return to investors by restricting
activities such as the payment of dividends; mergers with, or acquisitions by,
other institutions; investments; loans and interest rates; interest rates paid
on deposits and the creation of branch offices. Laws and regulations could
change at any time, and changes could adversely affect our business. In
addition, the cost of compliance with regulatory requirements could adversely
affect our ability to operate profitably. See "Supervision and Regulation" for
more information about applicable banking regulations.
BAY NATIONAL BANK'S ABILITY TO COMPETE MAY SUFFER IF IT CANNOT TAKE
ADVANTAGE OF TECHNOLOGY TO PROVIDE BANKING SERVICES OR IF ITS CUSTOMERS FAIL TO
EMBRACE THAT TECHNOLOGY. Our business strategy relies less on our customers'
access to a large branch network and more on access to technology and personal
relationships. Further, the market for financial services is increasingly
affected by advances in technology, including developments in
telecommunications, data processing, computers, automation, Internet-based
banking, telephone banking, debit cards and so-called "smart" cards. Our
ability to compete successfully may depend on the extent to which we can take
advantage of technological changes and the extent to which our customers
embrace technology to do their banking transactions. More information about our
plans to provide these types of services appears under the caption "Proposed
Business of Bay National Bank -- Other Banking and Financial Services."
THE COMPUTER SYSTEMS OF OUR DATA PROCESSING FIRM OR OUR BORROWERS COULD
FAIL TO OPERATE AS A RESULT OF THE YEAR 2000 ISSUE. The much publicized Year
2000 Issue is the result of computer programs using two digits rather than four
to define a year. Computer programs with date-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. Problems with
software used for bank operations could cause disruptions to operations,
including the temporary inability to process transactions or engage in similar
routine business activities. In addition, the Year 2000 Issue increases
transaction risks with third parties, including customers. If we or our data
processing vendor fail to achieve Year 2000 compliance by the time we open for
business in 2000, our earnings, cash flows and overall financial condition
could be adversely affected. In addition to risks relating to internal Year
2000 compliance, we may be vulnerable to the failure of
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our borrowers to remedy their own Year 2000 issues. We have provided more
information about the Year 2000 Issue under the caption "Management's Plan of
Operation -- Year 2000."
WE DO NOT INTEND TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE. Bay National
Bank will be the wholly owned subsidiary of Bay National Corporation and,
initially, will be our principal source of revenue. We anticipate that Bay
National Bank will incur losses during its initial phase of operations, and we
do not expect to pay any dividends for at least the first three years of our
operations. Even if Bay National Bank and Bay National Corporation have
earnings in an amount sufficient to pay dividends, we intend to reinvest
earnings for the purpose of funding the growth of Bay National Corporation and
Bay National Bank. See "Dividend Policy" and "Supervision and Regulation --
Dividends" for information about factors affecting our ability to pay
dividends.
OUR BOARD OF DIRECTORS ESTABLISHED AN ARBITRARY OFFERING PRICE, WHICH MAY
NOT REFLECT THE VALUE OF AN INVESTMENT IN OUR STOCK. Our board of directors
arbitrarily determined the offering price of the shares offered by this
prospectus. We did not engage an independent investment banking firm to assist
in determining the offering price. The $10.00 per share price bears no
relationship to the assets, earnings, book value or other established measures
of value of Bay National Corporation or Bay National Bank. In fixing the price,
the board considered primarily the subscription prices of securities offered by
other newly organized financial institutions and bank holding companies.
IF WE DON'T SELL THE MINIMUM OFFERING, YOU WILL HAVE LOST THE USE OF YOUR
SUBSCRIPTION FUNDS WHILE THEY ARE HELD IN ESCROW. The common stock is being
sold through certain directors and officers of Bay National Corporation. No
broker-dealer will assist us in the offering. Because the offering is not
underwritten, the sale of the minimum number of shares is not guaranteed. If
the minimum number of shares is not subscribed for, subscriber funds will be
returned with interest, but subscribers will have lost the ability to invest
their funds in a higher yielding investment during the offering.
IF OUR STOCK DOES NOT HAVE AN ACTIVE TRADING MARKET, STOCKHOLDERS MAY NOT
BE ABLE TO SELL THEIR SHARES. While the common stock will be freely
transferable by most investors in this offering immediately upon issuance, we
do not anticipate an active market for trading following this offering. You
should only invest in the common stock if you have a long-term investment
objective. If an active market does not develop, you may not be able to sell
your shares promptly or perhaps at all. At this time, we do not intend to list
the common stock on any national securities exchange or on The Nasdaq Stock
Market. See "The Offering -- Limited Market for Shares" for more information
about trading of our shares.
IF WE ISSUE ADDITIONAL STOCK IN THE FUTURE, YOUR PERCENTAGE OF OWNERSHIP
OF BAY NATIONAL CORPORATION WILL BE REDUCED. As a stockholder of Bay National
Corporation, you will not have preemptive rights with respect to the issuance
of additional shares of common stock or the issuance of any other class of
stock. This means that if we decide to issue additional shares of stock, you
will not automatically be entitled to purchase additional shares to maintain
your percentage ownership. If addition, if we sell additional shares in the
future, it is possible that those shares may be issued on terms more favorable
than the terms of this offering.
FORWARD LOOKING STATEMENTS
Some of the information in this prospectus may include "forward-looking
statements." These statements use words such as "may," "will," "expect,"
"anticipate," "plan," "estimate" or similar words, and they discuss our future
expectations, projections of financial results or strategies that are subject
to risks and uncertainties. When you read a forward-looking statement, you
should keep in mind the risk factors described above and any other information
contained in this prospectus which identifies a risk or uncertainty. Our actual
results and the actual outcome of our expectations and strategies could be
different from what we have described in this prospectus because of these risks
and uncertainties.
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BAY NATIONAL CORPORATION AND BAY NATIONAL BANK
Bay National Corporation was incorporated under the laws of the State of
Maryland on June 3, 1999, to operate as a bank holding company. We will file an
application with the Board of Governors of the Federal Reserve System ("Federal
Reserve Board") for approval to become a bank holding company pursuant to the
Bank Holding Company Act of 1956, and to purchase all of the capital stock to
be issued by Bay National Bank.
We filed an application to organize Bay National Bank with the Office of
the Comptroller of the Currency ("OCC") on October 25, 1999. The application
assumes the sale of all of the shares of Bay National Bank's common stock to
Bay National Corporation for an aggregate price of $9,000,000. Depending on the
amount of money we raise in the offering, we may purchase additional shares of
common stock of Bay National Bank, or otherwise contribute additional proceeds
to Bay National Bank, or retain a portion of the additional proceeds in Bay
National Corporation. See "Use of Proceeds." We also filed an application for
insurance of Bay National Bank's deposits with the Federal Deposit Insurance
Corporation ("FDIC") on November 12, 1999.
We anticipate that Bay National Bank will open in the first or second
quarter of 2000. However, our ability to meet the targeted opening date depends
upon a number of factors which may be beyond our control, including the timely
completion of this offering and the receipt of approvals by the bank regulatory
agencies. Any delay in the commencement of operations could increase the
estimated pre-opening expenses of Bay National Bank.
Bay National Corporation and Bay National Bank have not commenced active
business operations and neither will do so unless this offering is successfully
completed and Bay National Bank meets the conditions of the OCC to commence the
business of banking and of the FDIC to receive deposit insurance. Bay National
Corporation also must obtain approval from the Federal Reserve Board to become
a bank holding company.
THE OFFERING
GENERAL
We are offering for sale a minimum of 900,000 and a maximum of 1,500,000
shares of common stock at a price of $10.00 per share. No shares will be sold
unless we receive acceptable subscriptions for a minimum of 900,000 shares. We
expect that directors and officers of Bay National Corporation and Bay National
Bank will purchase approximately 100,000 of the shares offered.
We must receive subscriptions to purchase shares no later than 5:00 p.m.,
Eastern Time, on January 31, 2000, unless we elect to terminate or extend the
offering. We reserve the right to terminate the offering at any time prior to
January 31, 2000, or to extend the expiration date to April 30, 2000. Investors
must subscribe to purchase a minimum of 1,000 shares (for a minimum investment
of $10,000), subject to our right to permit smaller subscriptions at our
discretion. If an entity will own five percent (5%) or more or an individual
will own ten percent (10%) or more of the common stock outstanding after the
offering, the entity or individual must file certain information or
applications with bank regulatory agencies prior to purchasing shares in the
offering.
We will not engage a broker-dealer and will not pay any underwriting
discounts or commissions for the sale of the shares. Directors and officers of
Bay National Corporation will solicit subscriptions from prospective
stockholders. The directors and officers will not receive any special
compensation for such services but will be reimbursed for reasonable expenses.
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METHOD OF SUBSCRIPTION
If you wish to purchase shares, you must complete and sign the
Subscription Agreement accompanying this prospectus and deliver the completed
Subscription Agreement to Bay National Corporation prior to the termination
date of the offering, together with payment in full of the subscription price
of all shares subscribed for. Such payment must be by check or bank draft drawn
upon a U.S. bank, payable to "Brown Brothers Harriman & Co., Escrow Agent for
Bay National Corporation." If you wish to wire funds to our escrow account, you
may call Bay National Corporation at (410) 494-2580 to obtain wiring
instructions. IF PAYING BY UNCERTIFIED PERSONAL CHECK, YOU SHOULD ALLOW AT
LEAST FIVE BUSINESS DAYS PRIOR TO THE TERMINATION DATE FOR THE FUNDS TO CLEAR.
We will deposit all funds in the Bay National Corporation escrow account.
Pending closing of the offering, funds will be invested in bank accounts,
short-term certificates of deposit or short-term securities issued or
guaranteed by the United States government.
The address to which Subscription Agreements and payment of the
subscription price should be delivered is:
Bay National Corporation
2328 West Joppa Road
Suite 120
Baltimore, Maryland 21093
Attention: Hugh W. Mohler, President
Telephone No.: (410) 494-2580
WE RECOMMEND THAT YOU SEND YOUR SUBSCRIPTION AGREEMENT AND PAYMENT BY
REGISTERED MAIL, RETURN RECEIPT REQUESTED, AND ALLOW A SUFFICIENT NUMBER OF
DAYS FOR DELIVERY AND CLEARANCE OF PAYMENT PRIOR TO THE TERMINATION DATE OF THE
OFFERING. THE FULL SUBSCRIPTION PRICE FOR THE SHARES SUBSCRIBED FOR MUST BE
INCLUDED WITH THE SUBSCRIPTION AGREEMENT. FAILURE TO INCLUDE THE FULL
SUBSCRIPTION PRICE WITH THE SUBSCRIPTION AGREEMENT MAY CAUSE US TO REJECT THE
SUBSCRIPTION.
ESCROW ACCOUNT; RETURN OF FUNDS UPON FAILURE TO COMPLETE THE OFFERING OR UPON
LIQUIDATION
We established an escrow account at Brown Brothers Harriman & Co.,
Philadelphia, Pennsylvania, for deposit of all subscription funds. Brown
Brothers Harriman & Co. is a state chartered private commercial bank subject to
examination and regulation by the Department of Banking of the Commonwealth of
Pennsylvania. Subscription funds may be invested temporarily in bank accounts,
short-term certificates of deposit or short-term securities issued or
guaranteed by the United States government. If the offering is not completed
for any reason, all subscription funds will be returned to investors together
with their respective pro-rata share of any interest earned on the subscription
funds.
We have the right to break escrow, receive the funds in the escrow account
and issue shares of common stock to subscribers at any time after we receive
acceptable subscriptions for 900,000 shares and the preliminary approval of Bay
National Bank's charter by the OCC. Such preliminary approval does not
authorize Bay National Bank to open for business. That authority will not be
granted until we obtain insurance of Bay National Bank's deposits by the FDIC
and satisfy any other conditions imposed by the OCC.
We cannot guarantee that Bay National Bank will receive final approval to
commence business from all applicable regulatory agencies. If we elect to break
escrow prior to Bay National Bank's receipt of final approvals to commence
business, but such approvals are not ultimately obtained, your funds will be
irrevocably invested in the common stock. However, we would not be able to
implement our plan to own and
8
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operate a newly formed bank. In that event, we would likely begin liquidation
proceedings and distribute investor funds, without interest, as soon as
possible after completion of those proceedings.
Prior to any distributions to investors, all incurred expenses would be
paid. Accordingly, the amounts distributed in liquidation to investors may be
substantially less than the amount the investors paid for their shares of
stock. We cannot estimate what the amount of liquidation proceeds would be.
ACCEPTANCE, CANCELLATION AND REFUNDING OF SUBSCRIPTIONS
Although subscribers may not revoke their subscriptions, Subscription
Agreements are not binding on us until we accept them and we authorize the
release of offering proceeds from escrow. We reserve the right to reject, at
our sole discretion, any Subscription Agreement or to allot a smaller number of
shares than the number for which a person has subscribed. In addition, we
reserve the right to cancel any subscription, for any reason in our sole
discretion, before we authorize the release of offering proceeds from escrow.
In determining whether to reduce or reject a subscription, or to accept a
subscription smaller than $10,000, and in determining the number of shares to
allot to each subscriber in the event the offering is oversubscribed or
otherwise, we may take into account the order in which subscriptions were
received; a subscriber's potential to do business with, or to direct customers
to, Bay National Bank; our desire to have a broad distribution of stock
ownership and legal or regulatory restrictions.
If we reject all or a portion of any subscription, or if we cancel all or
a portion of any subscription before offering proceeds are released from
escrow, the escrow agent will promptly refund to the subscriber the amount
submitted, or the rejected or canceled portion thereof, without interest or
deduction. If for any reason the offering is not completed, all subscription
funds will be promptly refunded to subscribers together with their respective
pro-rata share of any interest earned on the subscription funds. After all
refunds have been made, the escrow agent, Bay National Corporation, Bay
National Bank and their respective directors, officers and agents will have no
further liability to subscribers.
Certificates representing shares duly subscribed and paid for will be
issued by Bay National Corporation as soon as practicable after funds are
released to Bay National Corporation by the escrow agent.
LIMITED MARKET FOR SHARES
Except for shares held by Bay National Corporation's directors and certain
officers, the shares sold in the offering will be freely transferable
immediately upon issuance and will not be subject to any transfer restrictions.
However, we do not anticipate that an active trading market for the shares will
develop in the foreseeable future. After the offering, we will encourage
broker-dealers to match buy and sell orders, or "make a market," for our common
stock on the OTC Bulletin Board. Although we anticipate that one or more
broker-dealers will be willing to make a market in our common stock, as of the
date of this prospectus no broker-dealer has committed to doing so. The trading
markets for securities on the OTC Bulletin Board typically lack the depth,
liquidity and orderliness necessary to maintain a liquid market. A liquid
public market depends on having enough buyers and sellers at any given time.
Because this is a relatively small offering, we do not expect to have enough
stockholders or outstanding shares to support an active trading market.
USE OF PROCEEDS
The proceeds to Bay National Corporation from the sale of the shares will
be $9,000,000 if the minimum number of shares is sold and $15,000,000 if the
maximum number of shares is sold, before deducting expenses of the offering,
which include legal, accounting and filing expenses, and are estimated at
$165,000. The proceeds to Bay National Corporation from the organizational
offering was $1,125,000.
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We will use $9,000,000 of the net proceeds of this offering and the
organizational offering to purchase all of the common stock of Bay National
Bank. We will pay all of the organizational and offering expenses and certain
operating costs of Bay National Corporation from the proceeds of this offering
and the organizational offering, in an estimated aggregate amount of $565,000.
The balance of the proceeds from this offering and the organizational offering,
estimated to be $560,000 if the minimum number of shares is sold, or $6,560,000
if the maximum number of shares is sold, will be retained by Bay National
Corporation for general corporate purposes. However, we may decide to
contribute all or a portion of the balance of the proceeds to Bay National
Bank.
Bay National Bank will apply the proceeds from the sale of its capital
stock to Bay National Corporation to pay for certain of its organizational and
prepaid operating costs in an estimated amount of $41,000 and to furnish and
equip Bay National Bank's two offices at an estimated cost of $745,000. The
balance of the proceeds, estimated at $8,214,000, will be used to fund lending
activities, to provide working capital for expansion and for general corporate
purposes, including the purchase of investment securities.
The following table reflects the anticipated allocation of the gross
proceeds of this offering and the organizational offering.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
MINIMUM OF NET MAXIMUM OF NET
AMOUNT PROCEEDS (1) AMOUNT PROCEEDS (1)
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
BAY NATIONAL CORPORATION:
Gross Offering Proceeds ................................. $10,125,000 $16,125,000
Offering Expenses ....................................... $ 165,000 $ 165,000
----------- -----------
Net Offering Proceeds ................................... $ 9,960,000 100.00% $15,960,000 100.00%
Purchase of Stock of Bank/Capital Contributions ......... $ 9,000,000 90.36% $ 9,000,000 56.39%
Salary and Benefits ..................................... $ 310,000 3.11% $ 310,000 1.94%
Other Pre-Opening Expenses .............................. $ 90,000 0.91% $ 90,000 0.57%
Working Capital ......................................... $ 560,000 5.62% $ 6,560,000 41.10%
BAY NATIONAL BANK:
Proceeds of Capital Contributions by Bay National
Corporation ............................................ $ 9,000,000 100.00% $ 9,000,000 100.00%
Leasehold and Equipment Acquisition ..................... $ 690,000 7.67% $ 690,000 7.67%
Other Pre-Opening and Occupancy Expenses ................ $ 55,000 0.61% $ 55,000 0.61%
Registration and Filing Fees ............................ $ 15,000 0.17% $ 15,000 0.17%
Prepaid Operating Expenses .............................. $ 26,000 0.29% $ 26,000 0.29%
Working Capital ......................................... $ 8,214,000 91.26% $ 8,214,000 91.26%
</TABLE>
- --------
(1) Percent of net proceeds, in the case of Bay National Bank, is calculated on
the basis of percent of net proceeds contributed to Bay National Bank by
Bay National Corporation.
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CAPITALIZATION
The following table shows Bay National Corporation's capitalization as of
August 31, 1999 and the pro forma consolidated capitalization of Bay National
Corporation and Bay National Bank as adjusted to give effect to (i) the sale of
900,000 shares and (ii) the sale of 1,500,000 shares, at a price of $10.00 per
share, less estimated offering expenses of $165,000 and estimated pre-opening
expenses (other than leasehold and equipment expenses and pre-paid operating
expenses of Bay National Bank) in an aggregate amount of $470,000.
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
AUGUST 31, NUMBER OF NUMBER OF
1999 (1) SHARES SOLD SHARES SOLD
-------------- ------------- --------------
<S> <C> <C> <C>
STOCKHOLDERS' EQUITY:
Common Stock, $0.01 par value; 9,000,000 shares authorized;
112,500 shares outstanding; 1,012,500 shares outstanding
(minimum offering); and 1,612,500 shares outstanding
(maximum offering) ............................................ $ 1,125 $ 10,125 $ 16,125
Preferred Stock, $0.01 par value; 1,000,000 shares authorized; no
shares outstanding ............................................ -- -- --
Additional paid-in capital (2) .................................. 1,123,875 9,949,875 15,943,875
Deficit accumulated during development stage .................... (109,909) (470,000) (470,000)
---------- ---------- -----------
Total stockholders' equity ...................................... $1,015,091 $9,490,000 $15,490,000
Net tangible book value per share ............................... $ 9.02 $ 9.37 $ 9.61
</TABLE>
- --------
(1) This represents shares of common stock sold in the organizational offering.
(2) Estimated offering expenses of $165,000 will be charged against this
account.
DIVIDEND POLICY
We expect that Bay National Corporation will retain all earnings, if any,
in order to provide more funds to operate and expand our business and,
therefore, we have no plans to pay any cash dividends for at least the first
three years of our operations. If we decide to pay dividends in the future, our
ability to do so will depend on the ability of Bay National Bank to pay
dividends to Bay National Corporation. Bay National Bank cannot pay dividends
to Bay National Corporation unless it complies with certain regulatory
requirements regarding the payment of dividends by a national bank. See
"Supervision and Regulation." In addition, we would consider a number of other
factors, including our earnings prospects, financial condition and cash needs
before deciding to pay dividends. If you are looking for an investment that
pays dividends, you should not invest in this offering.
PROPOSED BUSINESS OF BAY NATIONAL CORPORATION
Bay National Corporation expects to file an application to become a bank
holding company with the Federal Reserve Board in the near future. We know of
no reason why the approval from the Federal Reserve Board would not be
received, but we cannot predict when such approval will be received, or if the
Federal Reserve Board will impose any conditions on its approval.
Our principal asset will be our investment in all of the issued and
outstanding capital stock of Bay National Bank and Bay National Bank's
principal business will be commercial banking. With the prior approval of the
Federal Reserve Board, we may engage in non-banking activities closely related
to the business of banking. For example, with such approval, we could make and
service loans through a consumer finance subsidiary, or provide other types of
commercial financing. Further, the Federal Reserve Board allows bank holding
companies to give investment or financial advice, lease personal or real
property, provide data processing and courier services, or invest in small
business investment companies, among other permissible
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<PAGE>
activities. Other than our intent to engage in commercial banking through Bay
National Bank, we are not actively seeking other business opportunities at this
time. However, if a favorable opportunity is presented, we would consider it.
PROPOSED BUSINESS OF BAY NATIONAL BANK
GENERAL
As of the date of this prospectus, Bay National Bank has not been
authorized to conduct its banking business and has not engaged in any
operations. The issuance of a charter by the OCC and the approval of deposit
insurance by the FDIC will be dependent upon Bay National Corporation's and Bay
National Bank's compliance with certain conditions and procedures, including
the sale of Bay National Bank's stock to Bay National Corporation, the
completion of Bay National Bank's business premises, the purchase of certain
fidelity and other insurance, the hiring of staff and the adoption of certain
operating procedures and policies. When all conditions have been satisfied, Bay
National Bank will open for business with its main office in North Baltimore,
Maryland and a branch office in Salisbury, Maryland. Bay National Bank will
accept checking and savings deposits and will offer a wide range of commercial
and industrial, real estate, consumer and residential mortgage loans.
MARKETING FOCUS
As a result of bank mergers over the past decade, many banks in the
Baltimore metropolitan area and the Eastern Shore of Maryland are local
branches of large regional and national banks. Although size gives the larger
banks some advantages in competing for business from large corporations,
including economies of scale and higher lending limits, we believe that these
"megabanks" have focused on a mass market approach which de-emphasizes personal
contact and service. We also believe that the centralization of decision-making
power at these large institutions has resulted in a lack of customer service.
At many of these institutions, determinations are made at the "home office" by
individuals who lack personal contact with customers as well as an
understanding of the customers' needs and scope of the relationship with the
institution.
We believe that this trend has been particularly frustrating to owners of
small and mid-sized businesses, business professionals and high net worth
individuals who traditionally were accustomed to dealing directly with a bank
executive who had an understanding of their banking needs with the ability to
deliver a prompt response.
Bay National Bank will be a locally owned, locally managed commercial bank
that will meet the financial needs of a targeted population. Specifically, we
will target our commercial banking services to small and mid-sized businesses
and will target our retail banking services to the owners of these businesses
and their employees, to business professionals and high net worth individuals.
We will seek to distinguish ourselves by
o Developing personal relationships with our customers.
o Customizing our products to fit the needs of our customers instead of
adopting a "one size fits all" mentality.
o Streamlining the decision making process.
o Offering our customers additional complementary services, such as
insurance and investment advice, through relationships with strategic
partners.
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We do not intend for our bank offices to be organized in the traditional
retail branch structure, which is transaction and "bank teller" oriented.
Instead, we plan to adopt a "sit-down" model where customers are greeted by a
personal banker and taken to a private desk. We believe that this environment
will make service more individualized and enhance the banker's understanding of
the customer's needs. Furthermore, our branch locations will not focus on
capturing every customer within the surrounding area. Instead, they will be
strategically located in areas convenient to our customer base.
BANK LOCATION AND MARKET AREA
Bay National Bank's headquarters will be located in North Baltimore,
Maryland. We intend to serve the Baltimore metropolitan area from that
location, with our primary service area being Towson, Lutherville-Timonium,
Cockeysville, Hunt Valley, Ruxton and Roland Park. This is a busy commercial
area with a stable population of over 125,000. Based on data compiled by CACI
Marketing Systems, we estimate that this area is home to approximately 5,000
businesses and over 80,000 employees. Towson, which is the county seat of
Baltimore County, is the center of this commercial activity.
We will also establish a branch office in Salisbury, Maryland, from which
we will service Maryland's Eastern Shore. Salisbury, the commercial center of
Maryland's Eastern Shore, is located in Wicomico County and has approximately
50,000 of Wicomico County's 80,000 residents. Based on data compiled by CACI
Marketing Systems, we estimate that Wicomico County is home to approximately
3,200 businesses and over 38,000 employees.
Bay National Bank's two locations will enable us to take advantage of the
significant ties that our management and our directors have to these two areas.
LOAN PORTFOLIO
Bay National Bank will offer a full range of loans, including commercial
and industrial loans, real estate loans, consumer loans and residential
mortgage and home equity loans. We anticipate that commercial business and
commercial real estate loans for owner-occupied properties will be Bay National
Bank's primary loan products.
The goal of Bay National Bank's lending program will be to meet the credit
needs of our client base while using sound credit principles to protect the
quality of our assets. Our business and credit strategy will be relationship
driven, and Bay National Bank will strive to provide a reliable source of
credit, a variety of lending alternatives and sound financial advice.
Assuming the sale of the minimum number of shares in the offering, Bay
National Bank will have a legal lending limit of approximately $1,500,000 to
any one borrower, which would constitute approximately 15% of Bay National
Bank's unimpaired capital and surplus. We intend to originate loans and to
participate with other lenders in loans which exceed Bay National Bank's
lending limits. We do not believe that loan participations which Bay National
Bank purchases will necessarily pose any greater risk of loss than loans which
Bay National Bank originates.
The following is a description of the types of loans we expect to have in
our loan portfolio and the anticipated risks associated with each type of loan:
o Commercial and industrial loans for business purposes including working
capital, equipment purchases, lines of credit and government contract
financing. Asset-based lending, accounts receivable financing and lease
financing also will be available. We estimate that commercial loans will
constitute approximately 80% of Bay National Bank's loan portfolio.
Initially, we intend to target small and mid-sized businesses in our
market area with credit needs in the range of up to $5,000,000. Unlike
residential mortgage loans, which generally are made on the basis of the
borrower's ability to repay
13
<PAGE>
using his or her employment and other income and which are secured by real
property which can be valued easily, commercial business loans are riskier
and typically are made on the basis of the borrower's ability to make
repayment from the cash flow of the borrower's business. As a result, the
availability of funds for the repayment of commercial business loans
depends substantially on the success of the business itself. Further, the
collateral securing the loans may depreciate over time, may be difficult
to appraise and may fluctuate in value based on the success of the
business.
o Real estate loans, including land development and construction loan
financing, primarily for owner-occupied premises. We estimate that real
estate loans will constitute approximately 10% of Bay National Bank's loan
portfolio.
Commercial real estate loans usually are larger and present more risk
than do residential mortgage loans. Because payments on loans secured by
commercial real estate depend on the successful operation or management of
the properties that secure the loans, repayment is affected significantly
by downturns in the real estate market or in the economy.
Construction loans generally involve a higher degree of credit risk
than residential mortgage loans. Risk of loss on a construction loan
depends largely upon the accuracy of the initial estimate of the
property's value at completion of construction or development compared
with the estimated cost of construction and, in the case of owner-occupied
premises, the success of the owner's business. If the estimate of value
proves to be inaccurate, the value of the project when completed could be
insufficient to ensure full repayment of the loan.
o Consumer loans including automobile and personal loans. In addition, Bay
National Bank will offer personal lines of credit. We estimate that
consumer loans will constitute approximately 5% of Bay National Bank's
loan portfolio. Our consumer loans will be targeted to business owners and
their employees, business professionals and high net worth individuals.
Consumer loans may present greater credit risk than residential
mortgage loans because many consumer loans are unsecured or are secured by
rapidly depreciating assets, such as automobiles. Repossessed collateral
for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance because of the greater
likelihood of damage, loss or depreciation. Consumer loan collections
depend on the borrower's continuing financial stability. If a borrower
suffers personal financial difficulties, the loan may not be repaid. Also,
various federal and state laws, including bankruptcy and insolvency laws,
may limit the amount Bay National Bank can recover on such loans.
o Residential mortgage loans, including first and second mortgage loans and
home equity loans secured by single-family owner-occupied residences.
Because we will sell most of these loans in the secondary market, we
estimate that residential mortgage loans will constitute approximately 5%
of Bay National Bank's loan portfolio. Like our consumer loans, our
residential mortgage loans will be targeted to business owners and their
employees, business professionals and high net worth individuals.
We expect that the residential mortgage loans will adhere to standards
developed by FNMA/ FHLMC. We intend to require private mortgage insurance
for loans in excess of 80% of a property's value and, generally, do not
anticipate making loans with loan-to-value ratios in excess of 90%. We
anticipate that fixed-rate, conforming residential mortgage loans will be
sold to the secondary market at origination. We anticipate selling
participations in nonconforming, nonstandard loans, such as ARM loans.
Therefore, we expect to sell those loans which have a lower degree of risk
relative to the other types of loans that we expect to make.
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<PAGE>
DEPOSITS
Bay National Bank will offer a wide range of interest bearing and
non-interest bearing accounts, including commercial and retail checking
accounts, money market accounts, individual retirement accounts, interest
bearing statement savings accounts and certificates of deposit with fixed and
variable rates and a range of maturity date options.
Bay National Bank will pay competitive interest rates on time and savings
deposits. As a new bank, we believe that we will have a competitive advantage
over some of the larger, more established banks in our market area with respect
to the interest rates paid on our deposits. Specifically, we may be able to set
our initial deposit rates higher than those of more established banks because,
unlike an existing bank, our rates will not have to compete against the deposit
rates earned by existing customers.
OTHER BANKING AND FINANCIAL SERVICES
We will offer commercial customers cash management services such as sweep
accounts, account reconciliation, lockbox services and wire transfers of funds.
Additionally, we will make available telephone banking, ATM/debit cards, safe
deposit boxes, after-hours deposit services, travelers checks, direct deposit
of payroll and automatic drafts for various accounts. These services will be
provided either directly by us or through correspondent banking relationships.
However, we do not intend to have an ATM machine at our main office or our
branch in Salisbury.
In addition, Bay National Bank's customers will be able to access
information about their accounts and view information about Bay National Bank's
services and products on Bay National Bank's website, which will be located at
http://www.baynational.com. In the future, we expect, subject to regulatory
approval, that the website will permit customers to make transfers of funds
among accounts, pay bills, download information to financial software packages,
send e-mail to Bay National Bank personnel and apply for banking products, such
as the opening of an account.
We do not anticipate that Bay National Bank will exercise trust powers
during its initial years of operation. However, we plan on entering into
correspondent banking relationships with strategic partners that will provide
trust services to our customers.
We plan on offering, through strategic partners, investment advisory, risk
management and employee benefit services. Through these carefully structured
affiliations, we will be able to offer our clients a full range of financial
services, including investment advice, personal and business insurance products
and employee benefit products such as pension and 401K plan administration. To
the extent permitted by applicable regulations, the strategic partners may
share fees and commissions with Bay National Bank. When we develop sufficient
volume in any of these lines of business, we may provide these services
ourselves if permitted by applicable regulations. In all of our relationships
with our strategic partners, we will be the client's initial point of contact
in order to control service quality.
Bay National Bank will consider offering additional banking products and
services as warranted by customer demand. We believe that our data processing
capability, which will be provided through a third party vendor, will be more
than adequate to support the introduction of new products and services.
We have engaged DGF Projects, Inc. to provide us with corporate
communications and investor relations services. Daniel G. Finney, a principal
of DGF, has over twenty years experience in marketing, corporate communications
and investor relations for companies in the financial services industry. DGF
and Mr. Finney will assist us with corporate communications and will assist Bay
National Bank with establishing an identity in its markets.
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<PAGE>
SOURCE OF BUSINESS
A philosophy of superior personal service and convenience drives the
formation of Bay National Bank's business development strategies. Initially, we
will build our customer base from stockholders, officers and directors. We also
expect to capitalize upon the extensive business and personal contacts and
relationships of our officers and directors. To introduce new customers to Bay
National Bank, we will aggressively market ourselves to business owners and
professionals and their organizations.
We believe that Bay National Bank has a unique opportunity to fill an
important niche in the marketplace with the potential to rise above the
competition.
ASSET MANAGEMENT
Consistent with Bay National Bank's objective to serve the needs of small
and mid-sized businesses, we expect that our assets will be concentrated in
commercial loans. In accordance with the requirements of prudent banking
practices, we also will invest assets, in amounts we believe to be adequate, in
high-grade securities to provide liquidity and safety. Loans will be targeted
at 75% or less of deposits (excluding repurchase agreements), and structured
generally with variable rates and/or fixed rates with short maturities.
Investment securities will primarily be United States treasury securities and
securities of the United States government or "quasi-government" agencies and
certificates of deposits of FDIC-insured institutions.
The risk of nonpayment (or deferred payment) of loans is inherent in
commercial banking. Bay National Bank's marketing focus on small to mid-sized
businesses may result in Bay National Bank assuming lending risks that are
different from those associated with loans to larger companies. Management of
Bay National Bank will carefully evaluate all loan applications and will
attempt to minimize credit risk exposure by utilizing thorough loan
application, approval and monitoring procedures. However, we cannot guarantee
that those procedures will significantly reduce our lending risks.
COMPETITION
Deregulation of financial institutions and acquisitions of banks across
state lines has resulted in widespread changes in the financial services
industry. In both the Baltimore metropolitan area and on Maryland's Eastern
Shore, we will face strong competition from large banks headquartered within
and outside of Maryland. In addition, we will compete with other community
banks, savings and loan associations, credit unions, mortgage companies,
finance companies and others providing financial services. Many of our
competitors can finance extensive advertising campaigns, maintain extensive
branch networks and technology investments, and offer services which we cannot
or will not offer initially. Also, larger institutions have substantially
higher lending limits than Bay National Bank will have. Some of our competitors
have other advantages, such as tax exemption in the case of credit unions, and
lesser regulation in the case of mortgage companies and finance companies.
EMPLOYEES
We anticipate that Bay National Bank initially will employ approximately
17 people, including officers of Bay National Bank. We anticipate that
approximately 13 people will operate from our headquarters in North Baltimore
and approximately four people from our Salisbury branch. We do not expect to
add more employees during the first year of Bay National Bank's operation.
PROPERTIES
On July 16, 1999, Bay National Corporation entered into two lease
agreements for its main office which is located at 2328 West Joppa Road,
Baltimore, Maryland 21093.
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<PAGE>
The first lease, which commenced on July 26, 1999, is for 947 square feet
of space. This space, which is on the first floor of a three-story building,
will initially be used for administrative office space. Upon the opening of Bay
National Bank, this space will be used for Bay National Bank's Baltimore branch
operations. The lease term runs for five years and five months. Bay National
Corporation has the option to extend the term of this lease for one five-year
renewal term. During the initial lease term, Bay National Corporation will pay
monthly rent of approximately $1,900, which amount includes Bay National
Corporation's share of taxes and building operating costs.
The second lease will commence on December 1, 1999, or such later date
that all work to be performed on the leased premises is completed, but not
later than March 1, 2000. This lease is for 5,130 square feet of space and runs
for five years. Approximately 3,600 square feet of this space, which is on the
third floor of the same building, will be used for Bay National Corporation's
and Bay National Bank's administrative offices. Bay National Corporation also
has the option to extend the term of this lease for one five-year renewal term.
During the initial lease term, Bay National Corporation will pay monthly rent
of approximately $10,773, which amount includes Bay National Corporation's
share of taxes and building operating costs. Although we have not yet done so,
we intend to sublet approximately 1,500 square feet of this space for a
three-year term. After that sublease, we intend to reassess whether Bay
National Corporation or Bay National Bank requires the use of this additional
space for operations.
On September 16, 1999, Bay National Corporation entered into a lease
agreement for Bay National Bank's Salisbury, Maryland branch office which will
be located at 109 Poplar Hill Avenue, Salisbury Maryland 21801 in a two-story
building containing approximately 2,500 square feet of office space. This
lease, which became effective as of September 1, 1999, is for a term of five
years with Bay National Corporation having the option to extend the term for
three five-year renewal terms. During the initial lease term, Bay National
Corporation will pay monthly rent of approximately $1,980, plus all real estate
taxes and utilities. Pursuant to this lease, Bay National Corporation has a
right of first refusal to purchase the building in the event the landlord
receives a bona fide offer to sell.
MANAGEMENT'S PLAN OF OPERATION
GENERAL
As of the date of this prospectus, neither Bay National Corporation nor
Bay National Bank has commenced operations or engaged in any activities except
those related to the organization and capitalization of Bay National
Corporation and Bay National Bank. These limited activities have been financed
solely by Bay National Corporation's sale of an aggregate of 112,500 shares of
common stock at a purchase price of $10.00 per share in its organizational
offering. We expect that the capital provided by these sales will be sufficient
to meet our needs until the offering is completed. See "Certain Transactions."
Once Bay National Bank opens, expected in the first or second quarter of
2000, we will begin the banking operations described in this prospectus under
the caption "Proposed Business of Bay National Bank." We expect that Bay
National Bank will incur approximately $260,000 in expenses in leasehold
improvements for its offices and for furniture, fixtures and equipment for the
offices. We will contract with an outside vendor for Bay National Bank's data
processing. We anticipate a one-time capital expenditure of $430,000, and annual
costs in our first year of operations of approximately $200,000, for data
processing services.
We believe that the proceeds of this offering ($9,000,000 if the minimum
number of shares are sold and $15,000,000 if the maximum number of shares are
sold) and the proceeds from the organizational offering will be sufficient to
fund the expenses of establishing and opening Bay National Bank, and Bay
National Bank's and Bay National Corporation's operations for at least 12
months after the offering. We do not anticipate a need to raise additional
capital during that period. See "Use of Proceeds."
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YEAR 2000
The Year 2000 poses a significant challenge to all financial institutions
and other businesses because many automated systems may cease to function
normally in 2000 as a result of the way date files are maintained in those
systems. Federal banking regulators have taken a strong position relating to
the financial industry's obligations to manage so-called "Y2K risks." As a new
institution, we are focusing on making certain that any system put into place
is already Y2K compliant. It is our policy to require Y2K warranties on all
systems obtained and installed. Once we obtain warranties of compliance from
the system vendor, it will be our responsibility to verify the vendor's claim.
Our primary concern is the operation of our outside data processing service
because this service is the foundation of Bay National Bank's operations.
We anticipate that Bay National Bank will open in the first or second
quarter of 2000, at which time we believe that much of the uncertainty
surrounding the Year 2000 Issue should be resolved. As a result, we believe our
risks associated with computer malfunctions related to the Year 2000 Issue
should be reduced. However, we will still seek to ensure that our computer
systems and our vendors' and clients' computer systems are Y2K compliant and are
functioning properly.
We will require that our contract with our data processing service vendor
include a warranty from the vendor that its systems are Y2K compliant and that
the transition to the Year 2000 or any other date will not materially adversely
affect the vendor's ability to provide services. In addition, we will require
that our data processing vendor provide us with testing procedures using the
actual databases of other financial institutions currently being serviced by
the vendor. If we deem it necessary, we will request Y2K testing using Bay
National Bank's database, once it is established. All internal data processing
systems, including hardware and software applications which have been or will
be obtained, have been or will be warranted as to Y2K compliance. We will test
internal stand-alone systems such as document preparation systems after
installation. All systems will be analyzed as to the potential disruptive
impact of the Year 2000 computer-related malfunctions, and testing procedures
will be established based upon the risk of non-compliance. When available,
third party testing results will also be obtained and reviewed for
compatibility with Bay National Bank's operations.
We will lease our two banking offices, and we will evaluate any existing
systems within those offices for Y2K compliance. For example, in addition to
information systems, we will assess office equipment, security systems, vault
doors and other systems. All facility systems will be evaluated with regard to
the possible impact of the Year 2000. When a system is determined to be
date-sensitive, a further determination will be made as to the possible adverse
impact of the Year 2000. Where it is found that a risk does exist and the
effects of non-compliance are not acceptable to us, corrective actions will be
taken.
We also recognize that our customers' Y2K issues may affect our operations.
The ability of a major credit customer to honor a debt obligation could be
impaired if the customer has problems relating to Y2K. For an appropriate period
of time after January 1, 2000, we intend to ask our credit customers for Y2K
representations and make the representations part of our loan documentation.
Such representations will be supported by a documented evaluation of the
customer's Y2K position. A questionnaire will ask the commercial loan customer
to define how the Year 2000 will impact or has impacted its operations. From
that questionnaire and discussion with the customer, the loan officer will rate
the customer's vulnerability to Y2K risk. Risk characteristics will include
computer system capacities, business dependency on outside suppliers/ vendors
and outsource partners who also have Y2K risk and whether the customer's
industry is computer-related. The loan officer will also evaluate the customer's
preparedness for the Year 2000. If it is determined that the customer's Y2K
actions are not satisfactory and represent potential credit risk to Bay National
Bank, this may be sufficient reason to decline the loan request.
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SUPERVISION AND REGULATION
Bay National Corporation and Bay National Bank will be subject to
extensive regulation under state and federal banking laws and regulations.
These laws impose specific requirements and restrictions on virtually all
aspects of operations and generally are intended to protect depositors, not
stockholders. The following discussion is only a summary and you should refer
to particular statutory and regulatory provisions for more detailed
information. During the past 10 years numerous regulatory requirements have
been placed on the banking industry, and additional changes have been proposed.
We cannot predict the nature or the extent of the effect on our business and
earnings that fiscal or monetary policies, economic conditions, or new federal
or state legislation may have in the future.
BAY NATIONAL CORPORATION
FEDERAL BANK HOLDING COMPANY REGULATION. Bay National Corporation will be
a bank holding company registered under the Bank Holding Company Act of 1956,
as amended, and will be subject to supervision by the Board of Governors of the
Federal Reserve System. As a bank holding company, Bay National Corporation
will be required to file with the Federal Reserve Board an annual report and
such other additional information as the Federal Reserve Board may require by
statute. The Federal Reserve Board may also examine Bay National Corporation
and each of its subsidiaries.
The status of Bay National Corporation as a registered bank holding
company under the Bank Holding Company Act does not exempt it from certain
federal and state laws and regulations applicable to corporations generally,
including, without limitation, certain provisions of the federal securities
laws.
The Federal Reserve Board must approve, among other things, the
acquisition by a proposed bank holding company of control of more than five
percent (5%) of the voting shares, or substantially all the assets, of any bank
or the merger or consolidation by a bank holding company with another bank
holding company. Under the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994, the restrictions on interstate acquisitions of banks by
bank holding companies were repealed as of September 29, 1995. The effect of
the repeal of these restrictions is that Bay National Corporation may acquire a
bank located in Maryland or any other state, and a bank holding company located
outside of Maryland can acquire any Maryland-based bank, in either case subject
to certain deposit requirements and other restrictions.
With certain limited exceptions, a bank holding company is prohibited from
acquiring control of any voting shares of any company which is not a bank or
bank holding company and from engaging directly or indirectly in any activity
other than banking or managing or controlling banks or furnishing services for
its authorized subsidiaries. A bank holding company may, however, engage in
activities which the Federal Reserve Board has determined by order or
regulation to be so closely related to banking or managing or controlling banks
as to be "properly incident thereto." In making such a determination, the
Federal Reserve Board is required to consider whether the performance of such
activities can reasonably be expected to produce benefits to the public, such
as convenience, increased competition or gains in efficiency, which outweigh
possible adverse effects, such as undue concentration of resources, decreased
or unfair competition, conflicts of interest or unsound banking practices. The
Federal Reserve Board is also empowered to differentiate between activities
commenced de novo and activities commenced by the acquisition, in whole or in
part, of a going concern. Some of the activities that the Federal Reserve Board
has determined by regulation to be closely related to banking include making or
servicing loans, performing certain data processing services, acting as a
fiduciary, investment or financial advisor, and making investments in
corporations or projects designed primarily to promote community welfare. In
addition, with Federal Reserve Board approval, a bank holding company may become
a financial services holding company and, as such, may engage in other financial
services activities, such as insurance and the underwriting of securities.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by statute on any extensions of credit to the bank holding
company or any of its subsidiaries, or investments in their stock or other
securities, and on taking such stock or securities as collateral for loans to
any borrower. Further, a bank holding company and any subsidiary bank are
prohibited from engaging in certain tie-in arrangements in
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connection with the extension of credit. In 1997, the Federal Reserve Board
adopted amendments to its Regulation Y, creating exceptions to the Bank Holding
Company Act's anti-tying prohibitions that give bank subsidiaries of holding
companies greater flexibility in packaging products and services with their
affiliates.
In accordance with Federal Reserve Board policy, Bay National Corporation
is expected to act as a source of financial strength to Bay National Bank and
to commit resources to support Bay National Bank in circumstances in which Bay
National Corporation might not otherwise do so. The Federal Reserve Board may
require a bank holding company to terminate any activity or relinquish control
of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the
Federal Reserve's determination that such activity or control constitutes a
serious risk to the financial soundness or stability of any subsidiary
depository institution of the bank holding company. Further, federal bank
regulatory authorities have additional discretion to require a bank holding
company to divest itself of any bank or nonbank subsidiary if the agency
determines that divestiture may aid the depository institution's financial
condition.
The Board of Governors of the Federal Reserve System has adopted a
risk-based capital measure to assist in the assessment of the capital adequacy
of bank holding companies. Bank holding companies over $150,000,000 in assets
on a consolidated basis are required to maintain a minimum ratio of total
qualifying capital (the sum of core capital (Tier 1) and supplementary capital
(Tier 2)) to risk-weighted assets of 8%. At least half of this amount (4%)
should be in the form of Tier 1 capital. Bank holding companies with less than
$150,000,000 in consolidated assets will have the measure applied on a
bank-only basis, unless (i) the bank holding company is engaged in nonbank
activity involving significant leverage, or (ii) the bank holding company has a
significant amount of outstanding public debt.
Although not required to adhere to the risk-based capital measure if under
$150,000,000 in consolidated assets, small bank holding companies must remain
adequately capitalized and be capable of retiring their debt within 25 years of
the date the debt is incurred.
STATE BANK HOLDING COMPANY REGULATION. Bay National Corporation will be a
Maryland-chartered bank holding company and will be subject to various
restrictions on its activities as set forth in Maryland law, in addition to
those restrictions set forth in federal law. Under Maryland law, an existing
bank holding company that desires to acquire a Maryland state-chartered bank or
trust company, a federally-chartered bank with its main office in Maryland, or
a bank holding company that has its principal place of business in Maryland,
must file an application with the Maryland Commissioner of Financial Regulation
(the "Commissioner"). In approving the application, the Commissioner must
consider whether the acquisition may be detrimental to the safety and soundness
of the entity being acquired or whether the acquisition may result in an undue
concentration of resources or a substantial reduction in competition in
Maryland. The Commissioner may not approve an acquisition if, on consummation
of the transaction, the acquiring company, together with all its insured
depository institution affiliates, would control 30% or more of the total
amount of deposits of insured depository institutions in Maryland. The
Commissioner has authority to adopt by regulation a procedure to waive this
requirement for good cause. In a transaction for which the Commissioner's
approval is not required due to an exemption under Maryland law, or for which
federal law authorizes the transaction without application to the Commissioner,
the parties to the acquisition must provide written notice to the Commissioner
at least 15 days before the effective date of the acquisition.
In addition, a bank holding company and its Maryland state-chartered bank
or trust company cannot directly or indirectly acquire subsidiaries or
affiliates until the bank or trust company receives the approval of the
Commissioner. On application of the banking institution, the new affiliate will
be approved if the Commissioner determines that the approval is reasonably
required to protect the welfare of the general economy of Maryland and the
banking institution and is not detrimental to the public interest or to the
banking institution. The approval must impose the same conditions that federal
law requires or permits as to a national banking association and must comply
with applicable rules and regulations.
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BAY NATIONAL BANK
GENERAL. Bay National Bank, as a national banking association whose
accounts will be insured by the Bank Insurance Fund ("BIF") of the FDIC up to
the maximum legal limits, will be subject to regulation, supervision and
regular examinations by the OCC. Bay National Bank will be a member of the
Federal Reserve System and, as such, will be subject to certain regulations
issued by the Federal Reserve Board. Bay National Bank also will be subject to
applicable banking provisions of Maryland law insofar as they do not conflict
with or are not preempted by federal law. The regulations of these various
agencies govern most aspects of Bay National Bank's business, including setting
required reserves against deposits, loans, investments, mergers and
acquisitions, borrowing, dividends and location and number of branch offices.
Competition among commercial banks, savings and loan associations and
credit unions has increased following enactment of legislation which greatly
expanded the ability of banks and bank holding companies to engage in
interstate banking or acquisition activities. Banks in the Washington,
D.C./Maryland/Virginia area can, subject to limited restrictions, acquire or
merge with a bank in another of the jurisdictions and can branch de novo in any
of the jurisdictions. Legislation has been proposed which may result in
nonbanking companies being authorized to own banks. This could permit companies
with resources substantially in excess of Bay National Corporation's to compete
with Bay National Corporation and Bay National Bank.
Banking is a business which depends on interest rate differentials. In
general, the differences between the interest paid by a bank on its deposits
and its other borrowings and the interest received by a bank on loans extended
to its customers and securities held in its investment portfolio constitute the
major portion of a bank's earnings. Thus, the earnings and growth of Bay
National Bank will be subject to the influence of economic conditions
generally, both domestic and foreign, and also on the monetary and fiscal
policies of the United States and its agencies, particularly the Federal
Reserve Board, which regulates the supply of money. We cannot predict the
nature and timing of changes in such policies and their impact on Bay National
Bank.
BRANCHING AND INTERSTATE BANKING. Beginning on June 1, 1997, the federal
banking agencies were authorized to approve interstate bank merger transactions
without regard to whether such a transaction is prohibited by the law of any
state, unless the home state of one of the banks has opted out of the
interstate bank merger provisions of the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994. Furthermore, under the Riegle-Neal Act,
interstate acquisitions of branches are permitted if the law of the state in
which the branch is located permits such acquisitions. The Riegle-Neal Act also
authorizes the OCC and FDIC to approve interstate branching de novo by national
and non-member banks, respectively, but only in states which specifically allow
for such branching.
The District of Columbia, Maryland and Virginia have all enacted laws
which permit interstate acquisitions of banks and bank branches and permit
out-of-state banks to establish de novo branches.
CAPITAL ADEQUACY GUIDELINES. The Federal Reserve Board, the OCC and the
FDIC have all adopted risk-based capital adequacy guidelines by which they
assess the adequacy of capital in examining and supervising banks and bank
holding companies and in analyzing bank regulatory applications. Risk-based
capital requirements determine the adequacy of capital based on the risk
inherent in various classes of assets and off-balance sheet items.
Since December 31, 1992, national banks have been expected to meet a
minimum ratio of total qualifying capital (the sum of core capital (Tier 1) and
supplementary capital (Tier 2)) to risk-weighted assets (a "Total Risk-Based
Capital Ratio") of 8%. At least half of this amount (4%) should be in the form
of core capital. These requirements apply to Bay National Bank.
Tier 1 capital for national banks generally consists of the sum of common
stockholders' equity and perpetual preferred stock (subject in the case of the
latter to limitations on the kind and amount of such stock which may be
included as Tier 1 capital), less goodwill, without adjustment in accordance
with Statement of Financial Accounting Standards 115. Tier 2 capital consists
of the following: hybrid capital instruments,
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perpetual preferred stock which is not otherwise eligible to be included as
Tier 1 capital, term subordinated debt and intermediate-term preferred stock,
and, subject to limitations, general allowances for loan losses. Assets are
adjusted under the risk-based guidelines to take into account different risk
characteristics, with the categories ranging from 0% (requiring no risk-based
capital) for assets such as cash, to 100% for the bulk of assets which are
typically held by a bank holding company, including certain multi-family
residential and commercial real estate loans, commercial business loans and
consumer loans. Residential first mortgage loans on one-to-four-family
residential real estate and certain seasoned multi-family residential real
estate loans, which are not 90 days or more past-due or non-performing and
which have been made in accordance with prudent underwriting standards, are
assigned a 50% level in the risk-weighing system, as are certain privately
issued mortgage-backed securities representing indirect ownership of such
loans. Off-balance sheet items also are adjusted to take into account certain
risk characteristics.
In addition to the risk-based capital requirements, the OCC has
established a minimum 3% Leverage Capital Ratio (Tier 1 capital to total
adjusted assets) requirement for the most highly-rated national banks, with an
additional cushion of at least 100 to 200 basis points for all other national
banks, which effectively increases the minimum Leverage Capital Ratio for such
other banks to 4%-5% or more. Under the OCC's regulations, highest-rated banks
are those that the OCC determines are not anticipating or experiencing
significant growth and have well diversified risk, including no undue interest
rate risk exposure, excellent asset quality, high liquidity, good earnings and,
in general, those which are considered a strong banking organization. A
national bank that has less than the minimum Leverage Capital Ratio requirement
must submit to the applicable district office for review and approval a
reasonable plan describing the means and timing by which the bank will achieve
its minimum Leverage Capital Ratio requirement. A national bank which fails to
file such a plan is deemed to be operating in an unsafe and unsound manner and
could be subject to a cease-and-desist order. The OCC's regulations also
provide that any insured depository institution with a Leverage Capital Ratio
less than 2% is deemed to be operating in an unsafe or unsound condition.
Operating in an unsafe or unsound manner could lead the FDIC to terminate
deposit insurance. However, such an institution will not be subject to an
enforcement proceeding solely on account of its capital ratios if it has
entered into and is in compliance with a written agreement with the OCC to
increase its Leverage Capital Ratio to such level as the OCC deems appropriate
and to take such other action as may be necessary for the institution to be
operated in a safe and sound manner. The capital regulations also provide,
among other things, for the issuance by the OCC or its designee(s) of a capital
directive, which is a final order issued to a bank that fails to maintain
minimum capital or to restore its capital to the minimum capital requirement
within a specified time period. Such directive is enforceable in the same
manner as a final cease-and-desist order.
PROMPT CORRECTIVE ACTION. Each federal banking agency is required to
implement a system of prompt corrective action for institutions which it
regulates. Under applicable regulations, a bank will be deemed to be: (i) "well
capitalized" if it has a Total Risk-Based Capital Ratio of 10% or more, a Tier
1 Risk-Based Capital Ratio of 6% or more, a Leverage Capital Ratio of 5% or
more and is not subject to any written capital order or directive; (ii)
"adequately capitalized" if it has a Total Risk-Based Capital Ratio of 8% or
more, a Tier 1 Risk-Based Capital Ratio of 4% or more and a Leverage Capital
Ratio of 4% or more (3% under certain circumstances); (iii) "undercapitalized"
if it has a Total Risk-Based Capital Ratio that is less than 8%, a Tier 1
Risk-Based Capital Ratio that is less than 4% or a Leverage Capital Ratio that
is less than 4% (3.3% under certain circumstances); (iv) "significantly
undercapitalized" if it has a Total Risk-Based Capital Ratio that is less than
6%, a Tier 1 Risk-Based Capital Ratio that is less than 3% or a Leverage
Capital Ratio that is less than 3%; and (v) "critically undercapitalized" if it
has a ratio of tangible equity to total assets that is equal to or less than
2%. We believe that Bay National Bank will be a "well capitalized" bank if we
sell either the minimum or maximum number of shares in this offering.
An institution generally must file a written capital restoration plan
which meets specified requirements with an appropriate federal banking agency
within 45 days of the date the institution receives notice or is deemed to have
notice that it is undercapitalized, significantly undercapitalized or
critically undercapitalized. The federal banking agency must provide the
institution with written notice of approval or disapproval within 60 days after
receiving the capital restoration plan, subject to extensions by the applicable
agency.
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An institution which is required to submit a capital restoration plan must
concurrently submit a performance guaranty by each company that controls the
institution. Such guaranty is limited to the lesser of (i) an amount equal to
5% of the institution's total assets at the time the institution was notified
or deemed to have notice that it was undercapitalized or (ii) the amount
necessary at such time to restore the relevant capital measures of the
institution to the levels required for the institution to be classified as
adequately capitalized. Such a guaranty expires after the federal banking
agency notifies the institution that it has remained adequately capitalized for
each of four consecutive calender quarters. An institution which fails to
submit a written capital restoration plan within the requisite period,
including any required performance guaranty, or fails in any material respect
to implement a capital restoration plan, is subject to the restrictions in
Section 38 of the Federal Deposit Insurance Act which are applicable to
significantly undercapitalized institutions.
A critically undercapitalized institution will be placed in
conservatorship or receivership within 90 days unless the FDIC formally
determines that forbearance from such action would better protect the deposit
insurance fund. Unless the FDIC or other appropriate federal banking regulatory
agency makes specific further findings and certifies that the institution is
viable and is not expected to fail, an institution that remains critically
undercapitalized on average during the fourth calendar quarters after the date
it becomes critically undercapitalized must be placed in receivership.
Immediately upon becoming undercapitalized, an institution becomes subject
to statutory provisions which (i) restrict payment of capital distributions and
management fees; (ii) require that the appropriate federal banking agency
monitor the condition of the institution and its efforts to restore its
capital; (iii) require submission of a capital restoration plan; (iv) restrict
the growth of the institution's assets and (v) require prior approval of
certain expansion proposals. The appropriate federal banking agency for an
undercapitalized institution also may take any number of discretionary
supervisory actions if the agency determines that any of these actions is
necessary to resolve the problems of the institution at the least possible
long-term cost to the deposit insurance fund, subject in certain cases to
specified procedures. These discretionary supervisory actions include requiring
the institution to raise additional capital, restricting transactions with
affiliates, requiring divestiture of the institution or the sale of the
institution to a willing purchaser, and any other supervisory action that the
agency deems appropriate. Significantly undercapitalized and critically
undercapitalized institutions are subject to these and additional mandatory and
permissive supervisory actions..
REGULATORY ENFORCEMENT AUTHORITY. The Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA") included substantial
enhancement to the enforcement powers available to federal banking regulators.
This enforcement authority included, among other things, the ability to assess
civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions against banking organizations and
institution-affiliated parties, as defined in FIRREA. In general, these
enforcement actions may be initiated for violations of laws and regulations and
unsafe or unsound practices. Other actions or inactions may provide the basis
for enforcement action, including misleading or untimely reports filed with
regulatory authorities. FIRREA significantly increased the amount of and
grounds for civil money penalties and requires, except under certain
circumstances, public disclosure of final enforcement actions by the federal
banking agencies.
DEPOSIT INSURANCE. The FDIC has adopted a risk-based deposit insurance
assessment system. The FDIC assigns an institution to one of three capital
categories based on the institution's financial information, as of the
reporting period ending seven months before the assessment period, consisting
of (i) well capitalized, (ii) adequately capitalized or (iii) undercapitalized,
and one of three supervisory subcategories within each capital group. The
supervisory subgroup to which an institution is assigned is based on a
supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information that the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance funds. An institution's assessment rate depends on the capital
category and supervisory subcategory to which it is assigned. Assessment rates
for BIF deposits currently range from 0 basis points to 27 basis points. As a
new bank, Bay National Bank will initially be assigned to a capital and
supervisory subcategory that has an
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assessment rate of 0. The FDIC is authorized to raise the assessment rates in
certain circumstances, including to maintain or achieve the designated reserve
ratio of 1.25%, which requirement the BIF currently meets. The FDIC has
exercised its authority to raise rates in the past and may raise insurance
premiums in the future. If such action is taken by the FDIC, it could have an
adverse effect on the earnings of Bay National Bank.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC.
TRANSACTIONS WITH AFFILIATES AND INSIDERS. Bay National Bank will be
subject to the provisions of Section 23A of the Federal Reserve Act which place
limits on the amount of loans or extensions of credit to affiliates,
investments in or certain other transactions with affiliates and on the amount
of advances to third parties collateralized by the securities or obligations of
affiliates. Section 23A limits the aggregate amount of transactions with any
individual affiliate to ten percent (10%) of the capital and surplus of Bay
National Bank and also limits the aggregate amount of transactions with all
affiliates to twenty percent (20%) of capital and surplus. Loans and certain
other extensions of credit to affiliates are required to be secured by
collateral in an amount and of a type described in Section 23A, and the
purchase of low quality assets from affiliates is generally prohibited.
Bay National Bank also will be subject to the provisions of Section 23B of
the Federal Reserve Act which, among other things, prohibit an institution from
engaging in certain transactions with certain affiliates unless the
transactions are on terms substantially the same, or at least as favorable to
such institution and/or its subsidiaries, as those prevailing at the time for
comparable transactions with non-affiliated entities. In the absence of
comparable transactions, such transactions may only occur under terms and
circumstances, including credit standards, that in good faith would be offered
to or would apply to non-affiliated companies.
Bay National Bank also will be subject to the restrictions contained in
Section 22(h) of the Federal Reserve Act and the Federal Reserve Board's
Regulation O thereunder on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, an executive officer or
a greater-than-10% stockholder of a bank as well as certain affiliated
interests of any of the foregoing may not exceed, together with all other
outstanding loans to such person and affiliated interests, the
loans-to-one-borrower limit applicable to national banks (generally 15% of the
institution's unimpaired capital and surplus), and all loans to all such
persons in the aggregate may not exceed the institution's unimpaired capital
and unimpaired surplus. Regulation O also prohibits the making of loans in an
amount greater than $25,000 or 5% of capital and surplus but in any event not
over $500,000, to directors, executive officers and greater-than-10%
stockholders of a bank, and their respective affiliate, unless such loans are
approved in advance by a majority of the board of directors of the bank with
any "interested" director not participating in the voting. Further, Regulation
O requires that loans to directors, executive officers and principal
stockholders be made on terms substantially the same as those that are offered
in comparable transactions to other persons. Regulation O also prohibits a
depository institution from paying overdrafts over $1,000 of any of its
executive officers or directors unless they are paid pursuant to written
pre-authorized extension of credit or transfer of funds plans.
LOANS TO ONE BORROWER. As a national bank, Bay National Bank will be
subject to the statutory and regulatory limits on the extension of credit to
one borrower. Generally, the maximum amount of total outstanding loans that a
national bank may have to any one borrower at any one time is 15% of the bank's
unimpaired capital and surplus. A national bank may lend an additional 10% on
top of the 15% if the amount that exceeds 15% of the bank's unimpaired capital
and surplus is fully secured by readily marketable collateral.
LIQUIDITY. Bay National Bank will be subject to the reserve requirements
of Federal Reserve Board Regulation D, which applies to all depository
institutions. Specifically, amounts in Bay National Bank's transaction accounts
above $5,000,000 and under $44,300,000 must have reserves held against them in
the ratio of three percent (3%) of the amount.
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COMMUNITY REINVESTMENT ACT. The Community Reinvestment Act ("CRA")
requires that, in connection with examinations of financial institutions within
their respective jurisdictions, the Federal Reserve Board, the FDIC, the OCC or
the Office of Thrift Supervision shall evaluate the record of the financial
institutions in meeting the credit needs of their local communities, including
low and moderate income neighborhoods, consistent with the safe and sound
operation of those institutions. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
An institution's CRA activities are considered in, among other things,
evaluating mergers, acquisitions and applications to open a branch or facility.
The CRA also requires all institutions to make public disclosure of their CRA
ratings.
FINANCIAL SERVICES MODERNIZATION LEGISLATION. In early November 1999, the
United States Senate and House of Representatives approved the Financial
Services Modernization Act of 1999 (the "FSMA") and the FSMA was signed into law
by President Clinton on November 12, 1999. The FSMA contains a number of
provisions that will fundamentally alter the banking and financial services
industries. The FSMA repeals the Glass-Steagall Act, which generally has
separated commercial from investment banking. The FSMA will also for the first
time allow banks, securities firms and insurance companies to affiliate in a new
financial holding company structure.
Under the FSMA, national bank subsidiaries will be able to conduct certain
activities including providing insurance and securities services, so long as the
aggregate assets of the bank's subsidiaries do not exceed 45% of the bank's
assets or $50 billion, whichever is less. The national bank will have to be well
capitalized and well managed. In addition, activities such as the sale of
insurance and securities activities will be functionally regulated. For example,
the Securities and Exchange Commission will regulate most national bank
securities activities and the states will regulate most national bank insurance
activities. The FMSA preserves the thrift charter, but bars new unitary thrifts
from approval that were applied for after May 4, 1999.
Although it is anticipated that the FSMA will be enacted into law, it is
not possible to predict what impact the FSMA will have on Bay National
Corporation or Bay National Bank. One consequence may be increased competition
from large financial services companies that, under the FSMA, would be permitted
to provide many types of financial services to customers.
DIVIDENDS
The principal source of Bay National Corporation's revenues will be
derived from dividends received from Bay National Bank. The amount of dividends
that may be paid by Bay National Bank to Bay National Corporation depends on
Bay National Bank's earnings and capital position and is limited by statute,
regulations and policies. As a national bank, Bay National Bank may not pay
dividends from its paid-in surplus. All dividends must be paid out of undivided
profits then on hand, after deducting expenses, including provisions for loan
losses and bad debts. In addition, a national bank is prohibited from declaring
a dividend on its shares of common stock until its surplus equals its stated
capital, unless there has been transferred to surplus no less than one-tenth of
the bank's net profits for the preceding two consecutive half-year periods (in
the case of an annual dividend). The approval of the OCC is required if the
total of all dividends declared by a national bank in any calendar year exceeds
the total of its net profits for that year combined with its retained net
profits for the preceding two years, less any required transfers to surplus. In
addition, Bay National Bank may not pay a dividend if, after paying the
dividend, it would be undercapitalized.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Bay National Corporation's directors and executive officers and Bay
National Bank's proposed directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- ----- ---------------------------------------------------------------
<S> <C> <C>
Hugh W. Mohler 54 President and Chief Executive Officer of Bay National
Corporation and Bay National Bank, Director of Bay National
Corporation and Bay National Bank
John S. DiPietro 52 Vice President, Treasurer and Secretary of Bay National
Corporation and Vice President -- Operations, Senior Operating
Officer and Senior Financial Officer of Bay National Bank
Thomas M. Neale 46 Vice President of Bay National Corporation and Vice
President -- Client Services and Senior Lending Officer of Bay
National Bank
James C. Alban, Jr. 81 Director of Bay National Corporation and Bay National Bank
Carroll A. Bodie 54 Director of Bay National Corporation and Bay National Bank
Charles E. Bounds 80 Director of Bay National Corporation and Bay National Bank
Richard C. Hackney, Jr. 52 Director of Bay National Corporation and Bay National Bank
John R. Lerch 55 Director of Bay National Corporation and Bay National Bank
H. Victor Rieger, Jr. 61 Director of Bay National Corporation and Bay National Bank
Margaret Knott Riehl 65 Director of Bay National Corporation and Bay National Bank
William B. Rinnier 58 Director of Bay National Corporation and Bay National Bank
Edwin A. Rommel, III 49 Director of Bay National Corporation and Bay National Bank
Charles H. Salisbury 59 Director of Bay National Corporation and Bay National Bank
Henry H. Stansbury 60 Director of Bay National Corporation and Bay National Bank
Kenneth H. Trout 51 Director of Bay National Corporation and Bay National Bank
Eugene M. Waldron, Jr. 56 Director of Bay National Corporation and Bay National Bank
</TABLE>
Bay National Corporation has a classified board of directors whereby
one-third of the members will be elected each year at Bay National
Corporation's Annual Meeting of Stockholders. Upon election, each director
serves for a term of three years. See "Description of Capital Stock --
Anti-Takeover Provisions" for more information about Bay National Corporation's
classified board of directors. Bay National Corporation's officers are
appointed by the board of directors and hold office at the will of the board or
as otherwise provided in an employment agreement between an officer and Bay
National Corporation.
Each of Bay National Bank's proposed directors will, upon approval by the
OCC, serve until Bay National Bank's first stockholders' meeting, which will be
held shortly after Bay National Bank receives its bank charter. As Bay National
Corporation will be the sole stockholder of Bay National Bank, it is expected
that each interim director will be elected to serve as a director of Bay
National Bank. After the first stockholders meeting, directors of Bay National
Bank will serve for a term of one year and will be elected each year at Bay
National Bank's Annual Meeting of Stockholders. Bay National Bank's officers
will be appointed by its board of directors and will hold office at the will of
the board.
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Bay National Corporation has established an advisory board of directors
which is comprised of professionals and business persons who will provide
advice to Bay National Corporation's and Bay National Bank's board of directors
and who will promote the interests of Bay National Corporation and Bay National
Bank. An advisory board of directors is not required by any Maryland or federal
law or regulation and advisory directors are not subject to regulatory approval
or supervision. The advisory directors do not have the power to vote on any
matter considered by the board of directors and they serve at the pleasure of
the board.
Biographical information regarding the directors and officers of Bay
National Corporation and Bay National Bank is set forth below.
HUGH W. MOHLER serves as president and as a director of Bay National
Corporation and will serve as president and chief executive officer and as a
director of Bay National Bank. Mr. Mohler has more than 25 years' experience in
the financial services industry, holding positions in executive management,
commercial lending and business development. With an extensive background in
community banking and holding company management, he has particular expertise
in acquiring and growing new business. From 1977 to 1999, Mr. Mohler was
affiliated with Mercantile Bankshares Corporation, which is headquartered in
Baltimore, Maryland, most recently serving as executive vice president with
responsibility for 20 community banks in a three-state area. For 17 years, from
1978 to 1994, he was president of Mercantile's Salisbury based affiliate,
Peninsula Bank, the largest financial institution on Maryland's Eastern Shore.
Earlier he was a vice president in commercial lending at First National Bank of
Maryland.
A native of Baltimore, Mr. Mohler earned his undergraduate degree in
economics from Loyola College of Maryland and holds a master of business
administration degree from the University of Baltimore. He serves as president
of the board of trustees of Associated Catholic Charities, Inc. in the Roman
Catholic Archdiocese of Baltimore and is also a trustee of Loyola Blakefield
and Goucher College. Mr. Mohler's other civic commitments include membership on
the boards of United Way of Central Maryland, Leadership Maryland, Independent
College Fund of Maryland as well as the Board of Sponsors of the Sellinger
School of Business at Loyola College of Maryland.
Mr. Mohler's earlier civic experiences include: Chairman, Greater
Salisbury Committee; Chairman, Salisbury School and Chairman, Governor's Lower
Shore Economic Development Task Force. In addition, he has served on the boards
of Peninsula Regional Medical Center, Maryland Chamber of Commerce,
Salisbury-Wicomico Economic Development Committee and the Somerset County
Economic Development Committee. Mr. Mohler has also served as president of the
Maryland Bankers Association and on several committees of the American Bankers
Association.
JOHN S. DIPIETRO serves as a vice president, the secretary and the
treasurer of Bay National Corporation and will serve as vice
president-operations, senior operating officer and senior financial officer of
Bay National Bank. Mr. DiPietro has worked in the banking industry for more
than 32 years, serving from November 1995 to June 1999 as senior vice
president-bank operations for Mercantile-Safe Deposit & Trust Company, the
principal subsidiary of Baltimore-based Mercantile Bankshares Corporation. From
1974 to November 1995, he was associated with Mercantile's Peninsula Bank where
he served in various capacities, including executive vice president-operations
and executive vice president-administration. His background includes
significant experience in backroom operations, branch administration and
compliance issues.
A native of Laurel, Maryland, Mr. DiPietro earned a master of business
administration degree from Salisbury State University and currently serves as
co-chair of the university's board of visitors. He has served as a board member
for numerous community and civic organizations, among them the Coastal Hospice
and Junior Achievement of the Eastern Shore.
THOMAS M. NEALE serves as a vice president of Bay National Corporation and
will serve as vice president-client services and senior lending officer of Bay
National Bank. Mr. Neale has worked for over two decades in commercial banking
with line calling and management experience in both middle-market and corporate
lending at major East Coast financial institutions. From January 1999 to August
1999, Mr. Neale
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was managing director of First Union Corporation's Maryland private client
group where he specialized in meeting investment, insurance and credit needs of
high net worth individuals. From June 1994 to January 1999, he was a senior
vice president/corporate banking sales manager for First Union in Richmond,
Virginia. In that position, Mr. Neale was responsible for marketing the full
array of senior credit, capital management and cash management services in
Central and Eastern Virginia. He has also held senior lending posts at both MNC
Financial in Baltimore and Chase Manhattan Bank in New York.
An alumnus of the University of Virginia, Mr. Neale earned a master of
business administration degree from the College of William and Mary. A Buffalo,
New York, native, he serves as chairman of the College of William and Mary MBA
Alumni Association and on the board of directors of the Boy Scouts of America,
Baltimore chapter and of Family and Children's Services of Central Maryland.
Mr. Neale has served on the board of directors of the University of Virginia's
Richmond chapter alumni association and of the Bull and Bear Club in Richmond,
Virginia.
JAMES C. ALBAN, JR. is a director of Bay National Corporation and will be
a director of Bay National Bank. Since 1983, Mr. Alban has been self-employed
as a private investor trading as The Alban Company. From 1938 to 1983 Mr. Alban
was with the Alban Tractor Company, Inc., a Baltimore-based dealer for the
Caterpillar Tractor Company. Since 1991, Mr. Alban has been a director of Palm
Beach National Bank & Trust Co., a national commercial bank. From 1965 to 1988,
Mr. Alban was a director of the Savings Bank of Baltimore, Equitable
Bancorporation and Equitable Trust Company. His other board experiences include
service as a director of PHH Group, Inc. from 1969 to 1990 and Club Car, Inc.
from 1977 to 1995.
A Baltimore native, Mr. Alban holds an undergraduate degree from Lehigh
University. Mr. Alban is a past chairman of the Salvation Army Advisory Board
and a former trustee of Goucher College in Baltimore. In addition, he has
participated in Baltimore's Rotary Club for over forty years.
CARROLL A. BODIE is a director of Bay National Corporation and will be a
director of Bay National Bank. Mr. Bodie is vice president, general counsel and
secretary of Noxell Corporation, a Hunt Valley, Maryland-based subsidiary of
Procter & Gamble Company for which he also serves as associate general counsel.
Mr. Bodie has served in that capacity since 1987. Prior to joining Noxell, Mr.
Bodie spent more than two decades in the brewing industry, his most recent
position being with the Miller Brewing Company subsidiary of Philip Morris
Companies, Inc.
A Baltimore native, Mr. Bodie holds an undergraduate degree in marketing
from the University of Baltimore and earned his law degree from the University
of Baltimore School of Law. Admitted to practice before numerous courts,
including those in the State of Maryland and the United States Supreme Court,
he is a member of both the Baltimore County, Maryland Bar Association, the
American Bar Association and the American Corporate Counsel Association. Mr.
Bodie is chairman of the board of trustees of Loyola Blakefield and a board and
executive committee member for the Independent College Fund of Maryland. He is
a past director and board chairman for the YMCA of Central Maryland.
CHARLES E. BOUNDS is a director of Bay National Corporation and will be a
director of Bay National Bank. Mr. Bounds is a retired executive who served
from 1944 to 1969 as director of purchases and inventory for Symington Wayne
Corporation, an international conglomerate headquartered in Salisbury,
Maryland, which operated businesses in the United States and seven foreign
countries. From 1969 to 1999, he was a vice president-investments for Morgan
Stanley Dean Witter, working in the Salisbury, Maryland office of the
investment banking firm.
A native of Salisbury, Maryland, Mr. Bounds is past chairman of the
Salvation Army Boys Club in Salisbury, Maryland, and headed the Salisbury,
Maryland Salvation Army administrative board. He has also chaired fund raising
efforts for the Boy Scouts of America, Delmarva District. Mr. Bounds was an
original member of the Ward Foundation, which is a Salisbury, Maryland based
non-profit organization which operates The Ward Museum of Wildfowl Art. Mr.
Bounds is an alumnus of Beacom College.
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<PAGE>
RICHARD C. HACKNEY, JR. is a director of Bay National Corporation and will
be a director of Bay National Bank. Mr. Hackney has over 24 years experience as
an investment management executive, including experience in portfolio
management, research, client relations and business management. Since 1994, Mr.
Hackney has been a principal, portfolio manager and research analyst for Brown
Investment Advisory & Trust Company, a Baltimore-based financial advisory
company. From 1992 to 1994, Mr. Hackney was president of Hackney Capital
Management, LP, a financial advisory joint venture with Alex. Brown & Sons.
From 1987 to 1992, Mr. Hackney was a principal with Alex. Brown & Sons, and
during that time he assisted with the formation of the Flag Investors Emerging
Growth mutual fund. From 1973 to 1987, Mr. Hackney was employed in the trust
and investment division of JP Morgan, Inc., New York, New York.
An Atlanta, Georgia native, Mr. Hackney serves as a member of the Maryland
Higher Education Investment Board, and as a trustee of the Maryland Institute,
College of Art, Baltimore, Maryland; the Fund for Educational Excellence,
Baltimore, Maryland; and the Wenner-Gren Foundation for Anthropological
Research, New York, New York. Mr. Hackney is a former trustee and treasurer of
the Associated Black Charities, Baltimore, Maryland and a former chairman of
the Alvin Ailey Dance Theater Foundation of Maryland. A graduate of Morehouse
College in Atlanta, Georgia, Mr. Hackney received a law degree from Boston
College Law School and a master of business administration degree from The
Wharton School of Finance, University of Pennsylvania.
JOHN R. LERCH is a director of Bay National Corporation and will be a
director of Bay National Bank. Since January 1999, Mr. Lerch has been
self-employed as a private investor trading as the Chesapeake Venture Group.
From 1973 to January 1999, Mr. Lerch was president of Chesapeake Insurance-The
Harris Riggin Agency, an independent insurance agency based in Salisbury,
Maryland. Mr. Lerch began his business career in the securities industry,
serving as a stockbroker at firms in Washington, D.C. and Salisbury, Maryland.
Mr. Lerch is a past director of the Independent Insurance Agents of Maryland.
A native of Wilmington, Delaware, Mr. Lerch is an alumnus of Dickinson
College of Carlisle, Pennsylvania. He served as an officer in the U.S. Army and
holds a Bronze Star from his service in Vietnam. He is a past director of
Peninsula Bank, a subsidiary of Baltimore-based Mercantile Bankshares
Corporation. He is a past director and vice-chairman of the Greater Salisbury
Committee, past trustee of the Peninsula Regional Medical Center in Salisbury,
past president of Salisbury-Wicomico Economic Development Corporation and past
president and campaign chairman of the United Way of the Lower Eastern Shore.
He also has served as a director for the Mid-Delmarva Family YMCA and was a
former chairman and a current trustee for The Ward Foundation.
H. VICTOR RIEGER, JR. is a director of Bay National Corporation and will
be a director of Bay National Bank. Mr. Rieger retired from Signet Banking
Corporation, successor to Union Trust Company of Maryland, in December 1997
after nearly four decades of service. Mr. Rieger served in numerous capacities
for Signet, including regional executive vice president of international
banking and as part of Signet's Maryland commercial banking group. Mr. Rieger
has extensive experience in commercial relationship banking, credit
administration and loan policy.
An alumnus of Johns Hopkins University, Mr. Rieger is a graduate of the
Stonier School of Banking at Rutgers University. He is past president and a
current trustee of Family and Children's Services of Central Maryland, past
treasurer and board member of the National Flag Day Foundation and a past
vice-president and director of the Baltimore Junior Association of Commerce. He
is a former member of the loan committee for the Minority Small Business
Investment Company and a past advisory board member of the U.S. Small Business
Administration. Mr. Rieger also is past president of the Chesapeake Chapter of
Robert Morris Associates.
MARGARET KNOTT RIEHL is a director of Bay National Corporation and will be
a director of Bay National Bank. Mrs. Riehl is a retired nurse and civic
volunteer. She is currently a trustee of the Marion I. and
Henry J. Knott Foundation, a Baltimore, Maryland-based philanthropic
organization and has served in that
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<PAGE>
capacity from 1978 to 1985 and again from 1993 to present. She serves as
vice-chair of the board of trustees of Baltimore's Associated Catholic
Charities, Inc., and as chair of Friends of St. Mary's Seminary & University,
also in Baltimore. Mrs. Riehl is a former trustee of the Community Foundation
of Baltimore, Mercy Medical Center, the Institute of Notre Dame and St. Paul's
School for Girls. A Baltimore native, Mrs. Riehl is an alumna of the Mercy
Hospital School of Nursing.
WILLIAM B. RINNIER is a director of Bay National Corporation and will be a
director of Bay National Bank. Mr. Rinnier is the owner and president of Larmar
Corporation, a Salisbury, Maryland based real estate development company which
specializes in the development and sale or management of resort condominiums,
multi-family apartments and commercial and industrial buildings. He joined
Larmar nearly three decades ago after his honorable discharge from the U.S.
Navy.
A native of Salisbury, Maryland, Mr. Rinnier earned a degree in aerospace
engineering from the Georgia Institute of Technology and attended the Graduate
School of Business at the University of Virginia. He is a board member of the
Greater Salisbury Committee and is past president of the Salisbury-Wicomico
Economic Development Corporation and the Coastal Board of Realtors.
EDWIN A. ROMMEL is a director of Bay National Corporation and will be a
director of Bay National Bank. Mr. Rommel is a certified public accountant who,
since 1974, has been a partner in the Salisbury, Maryland, accounting firm of
Twilley, Rommel & Moore, P.A. Mr. Rommel has been certified as a valuation
analyst and accredited in business evaluation by the American Institute of
Certified Public Accountants.
A Baltimore native, Mr. Rommel earned his undergraduate degree from Loyola
College of Maryland. Mr. Rommel is a current director of the Greater Salisbury
Committee and past president of the Salisbury Area Chamber of Commerce. He
serves as a director of the Maryland Association of Certified Public
Accountants and an officer of its Eastern Shore Chapter. Mr. Rommel is past
president of the St. Francis de Sales Board of Trustees and past member of the
Wicomico County Democratic Central Committee.
CHARLES H. SALISBURY is a director of Bay National Corporation and will be
a director of Bay National Bank. Since 1998, Mr. Salisbury has been a private
investor in radio properties. From 1994 to 1998, Mr. Salisbury was an executive
vice president and member of the management committee of United Asset
Management Corporation, a Boston-based financial services holding company. From
1970 to 1993, Mr. Salisbury was employed by T. Rowe Price Associates, serving
on the firm's board of directors and, for more than a dozen years, heading its
institutional marketing group. He assisted in the organization and development
of the firm's fixed-income department, managed many of its major equity and
debit accounts and assisted with the formation of two major mutual funds. He
was later given responsibility as president and chief investment officer of T.
Rowe Price Trust Company and was a director of T. Rowe Price's Retirement Plan
Services subsidiary. He began his career with Merrill Lynch Pierce Fenner &
Smith after serving as a commissioned officer in the U.S. Air Force.
A Baltimore native, Mr. Salisbury earned his undergraduate degree in
history from Hobart College and today chairs the board of trustees of Hobart
and William Smith Colleges. He holds a master of business administration degree
from Loyola College of Maryland. Mr. Salisbury chairs the investment committee
of the Maryland Institute, College of Art in Baltimore.
HENRY H. STANSBURY is a director of Bay National Corporation and will be a
director of Bay National Bank. Since 1975, Mr. Stansbury has been the chief
executive officer of Agency Services, Inc., the largest independently owned
premium finance company in the United States. Since 1989, Mr. Stansbury has
been the chief executive officer of Agency Insurance Company of Maryland, Inc.,
a privately owned multi-line property/casualty insurance company. Mr. Stansbury
is president of the Maryland Association of Premium Finance Companies and is a
past president and current director of the National Association of Premium
Finance Companies.
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Mr. Stansbury is a trustee of the Maryland Historical Society, a trustee
of the Ward Museum of Wildfowl Art, and a director of the Catonsville
Historical Society. He served as director and chairman of the museum committee
for the Lacrosse Hall of Fame at the Johns Hopkins University and is vice
president and a trustee of the St. Paul's School for Boys. He is also past
president and a current board member of ReVisions, Inc., a nonprofit
organization which serves the mentally ill. Mr. Stansbury is a graduate of
Leadership Maryland and a director of Leadership Baltimore County. He is the
author of LLOYD J. TYLER: FOLK ARTIST AND DECOY MAKER. Mr. Stansbury is an
alumnus of the University of Maryland and holds a master of business
administration degree from George Washington University.
KENNETH H. TROUT is a director of Bay National Corporation and will be a
director of Bay National Bank. Since January 1999, Mr. Trout has served as the
executive vice president and chief operating officer of Rosemore, Inc., a
Baltimore-based privately held investment company primarily engaged in the
business of oil and gas exploration and production. He also serves as a
director of Rosemore Holdings, Inc., Rosemore Calvert, Inc., Tema Oil and Gas
Company and Gateway Gathering and Marketing Company, which are all subsidiaries
of Rosemore, Inc. He is also a director of KCI Technologies, Inc. From 1970 to
November 1997, Mr. Trout was employed by Signet Banking Corporation. During his
last five years of tenure with Signet, he served as senior executive vice
president-commercial banking and as president and chief executive officer of
Signet Bank-Maryland. Mr. Trout was retired from December 1997 to December
1998.
A Bridgeton, New Jersey native, Mr. Trout received his undergraduate
degree in economics and business administration from Methodist College in North
Carolina. He is chairman of the board of governors of the National Aquarium in
Baltimore and is a trustee of the College of Notre Dame of Maryland.
EUGENE M. WALDRON, JR. is a director of Bay National Corporation and will
be a director of Bay National Bank. Mr. Waldron is a chartered financial
analyst and since September 1998 has been a senior vice president in the
Washington, D.C., office of Capital Guardian Trust Company, an employee-owned
firm based in Los Angeles dedicated to international investing. From March 1994
to August 1998, Mr. Waldron was employed by Loomis, Sayles & Company, an
investment management firm. Mr. Waldron's more than three decades of investment
experience include employment at CS First Boston Asset Management, Fidelity
Management Trust Company, T. Rowe Price Associates and Baker, Watts & Company.
An alumnus of Mt. St. Mary's College, Emmitsburg, Maryland, Mr. Waldron
earned his master of business administration degree at the Bernard M. Baruch
College of the City University of New York. A native of Annapolis, Maryland, he
is a member of the Mt. St. Mary's Board of Trustees and the Newton,
Massachusetts Country Day School of the Sacred Heart's Endowment Committee.
Other than Mr. Mohler and Mr. Waldron who are first cousins, there are no
family relationships between any director or executive officer and any other
director or executive officer of Bay National Corporation.
DIRECTOR COMPENSATION
Bay National Corporation currently does not pay directors fees and does
not intend to pay directors fees until Bay National Bank is profitable.
However, we reserve the right to pay directors' fees. Directors will be
reimbursed for reasonable expenses incurred on behalf of Bay National
Corporation.
EMPLOYMENT AND EXECUTIVE COMPENSATION ARRANGEMENTS
Bay National Corporation has entered into written employment agreements
with each of Mr. Mohler, Mr. DiPietro and Mr. Neale effective as of September
14, 1999. Under these agreements, Mr. Mohler will serve as the president of Bay
National Corporation at an initial annual base salary of $154,000, subject to
annual review, and Mr. DiPietro and Mr. Neale will serve as vice presidents of
Bay National Corporation at an initial annual base salary of $154,000 each,
subject to annual review. However, Mr. Mohler will not receive any compensation
pursuant to his employment agreement until January 2000.
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Bay National Corporation may terminate each employment agreement without
cause upon 30 days' prior written notice and may terminate each employment
agreement for cause at any time without prior notice. Each of Mr. Mohler, Mr.
DiPietro and Mr. Neale may terminate his employment agreement at any time upon
30 days' prior written notice. Mr. Mohler's, Mr. DiPietro's and Mr. Neale's
agreement with Bay National Corporation will terminate, unless extended by the
parties' mutual agreement, on the effective date of an employment agreement
between Mr. Mohler, Mr. DiPietro and Mr. Neale, as the case may be, and Bay
National Bank, or on the date Bay National Corporation's board of directors
decides to terminate this offering.
On the date that Bay National Bank opens for business, Mr. Mohler, Mr.
DiPietro and Mr. Neale will each enter into an employment agreement with Bay
National Bank. Under these agreements, Mr. Mohler will serve as the president
of Bay National Bank at an initial annual base salary of $154,000, subject to
annual review, and Mr. DiPietro and Mr. Neale will serve as vice presidents of
Bay National Bank at an initial annual base salary of $154,000 each, subject to
annual review. Each agreement will have an initial term of three years,
automatically renewable for one year terms unless written notice is provided by
either party 90 days before expiration of a term.
Bay National Bank may terminate each employment agreement without cause
upon 30 days' prior written notice and may terminate each employment agreement
for cause at any time without prior notice. Each of Mr. Mohler, Mr. DiPietro and
Mr. Neale may terminate his employment agreement at any time upon 30 days' prior
written notice. In the event Mr. Mohler, Mr. DiPietro or Mr. Neale is terminated
without cause, the terminated employee will continue to receive salary payments
for the greater of six months or the remainder of his employment term or until
such time as the employee has found comparable employment. The terminated
employee is required to use his best efforts to obtain comparable employment.
Pursuant to these agreements, if Mr. Mohler, Mr. DiPietro or Mr. Neale is
employed by Bay National Bank on the date of a "change of control," he is
entitled to a payment of $446,000 from Bay National Bank. The employment
agreements define "change of control" as (i) the acquisition by any person of
forty percent (40%) or more of the outstanding shares of common stock of Bay
National Bank or Bay National Corporation; (ii) the election of a majority of
the members of the board of directors who were not approved or nominated by
then incumbent board or (iii) the approval by the stockholders of Bay National
Bank or Bay National Corporation of (a) a reorganization, merger or
consolidation of Bay National Bank or Bay National Corporation; (b) a
liquidation or dissolution of Bay National Bank or Bay National Corporation or
(c) the sale or other disposition of all or substantially all of the assets of
Bay National Bank or Bay National Corporation.
In the employment agreements with Bay National Bank, Mr. Mohler, Mr.
DiPietro and Mr. Neale each agree that for a period of six (6) months after
employment with Bay National Bank or any affiliate, he will not, directly or
indirectly, own, operate or otherwise be associated with, any financial
institution which is located in the Bank's market area. Mr. Mohler, Mr.
DiPietro and Mr. Neale each also agree that for a period of one (1) year after
employment with Bay National Bank or any affiliate, he will not (i) solicit any
person or entity which at the time of his termination was, or within one (1)
year prior thereto had been, a customer of Bay National Bank or any of its
affiliates or (ii) solicit the employment of any person who was employed by Bay
National Bank or any of its affiliates on a full or part time basis at the time
of his termination of employment, unless such person (a) was involuntarily
discharged by Bay National Bank or the affiliate or (b) voluntarily terminated
his relationship with Bay National Bank or the affiliate prior to Mr. Mohler's,
Mr. DiPietro's; or Mr. Neale's, as the case may be, termination of employment.
In addition, after the offering, Mr. Mohler will be granted options to
purchase 3% of the shares of common stock outstanding after the offering and
Mr. DiPietro and Mr. Neale each will be granted options to purchase 1.5% of the
shares of common stock outstanding after the offering. All of these options
will be exercisable at the public offering price of $10.00 per share and will
be granted pursuant to a stock option plan to be adopted by Bay National
Corporation's board of directors.
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Bay National Corporation intends to purchase "key man" life insurance on
Mr. Mohler, Mr. DiPietro and Mr. Neale.
STOCK OPTION PLAN
GENERAL. Bay National Corporation's board of directors intends to adopt a
stock option plan as a performance incentive for executive employees, to
encourage ownership of Bay National Corporation stock by executive employees
and directors and to encourage such persons to remain employed by Bay National
Corporation or its subsidiaries, including Bay National Bank. The plan will
require the prior approval of the banking regulators and the approval of Bay
National Corporation's stockholders within one year from the plan's adoption by
the board of directors.
SHARES SUBJECT TO THE PLAN; ADMINISTRATION. The board of directors intend
to reserve for issuance upon the exercise of options granted under the plan 12%
of the shares of common stock outstanding after the offering. Currently, we
expect to grant options to purchase 6% of the shares of common stock
outstanding after the offering to Mr. Mohler, Mr. DiPietro and Mr. Neale.
The plan will be administered by a compensation committee appointed by the
board of directors. The compensation committee will be authorized to determine
and designate from time to time those persons to whom options are to be
granted. Options may be "incentive stock options" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified options. In general, the purchase price of each share of common
stock subject to an option will be equal to the share's fair market value on
the date of grant.
TERMS OF OPTIONS. The plan will have a 10-year term. Each incentive stock
option granted under the plan will expire not more than eight years from the
date the option was granted, except each incentive stock option granted under
the plan to an individual owning more than 10% of the outstanding common stock
of Bay National Corporation will expire not more than five years from the date
the option was granted. Non-qualified options granted under the plan will
expire on such date as the compensation committee determines.
Except as otherwise determined by the compensation committee, options
granted under the plan will vest in four equal installments, with the first
installment vesting three years from the date of the grant, the second
installment vesting four years from the date of the grant, the third
installment vesting five years from the date of the grant and the fourth
installment vesting six years from the date of the grant. Incentive stock
options granted to an individual who possesses more than 10% of the total
combined voting power of all classes of stock of Bay National Corporation will
vest in two equal installments, with the first installment vesting three years
from the date of the grant and the second installment vesting four years from
the date of the grant.
INDEMNIFICATION ARRANGEMENTS
Bay National Corporation's Articles of Incorporation provide that officers
and directors will be indemnified against liabilities to the fullest extent
permitted by the Maryland General Corporation Law. Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers or persons controlling Bay National Corporation, under
those provisions of the Articles of Incorporation, Bay National Corporation has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.
33
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the ownership of Bay National Corporation's
common stock by its directors, executive officers and persons known to own more
than five percent (5%) of the common stock as of the date of this Prospectus.
The table does not reflect the warrants or options granted or to be granted to
any of these persons. Unless otherwise noted below, we believe that each person
named in the table has or will have the sole voting and sole investment power
with respect to each of the shares of common stock reported as owned by such
person.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES PERCENTAGE OF TOTAL
- --------------------------------------------- ------------------ --------------------
<S> <C> <C>
Carroll A. Bodie 5,000 4.44%
4005 Greenway
Baltimore, MD 21218
Charles E. Bounds 2,500 2.22%
1707 Upper Millstone Lane
Salisbury, MD 21801
John R. Lerch 10,000(1) 8.89%
618 Indian Lane
Salisbury, MD 21801
Hugh W. Mohler 10,000 8.89%
23 Buchanan Road
Baltimore, MD 21212
H. Victor Rieger, Jr. 5,000 4.44%
1015 Ivy Hill Road
Cockeysville, MD 21030
Margaret K. Riehl 5,000 4.44%
6200 Gentry Lane
Baltimore, MD 21210
William B. Rinnier 5,000 4.44%
616 Manor Drive
Salisbury, MD 21801
Edwin A. Rommel, III 5,000 4.44%
5281 Silver Run Lane
Salisbury, MD 21801
Charles H. Salisbury 10,000 8.89%
7209 Bellona Avenue
Baltimore, MD 21212
Henry H. Stansbury 10,000(2) 8.89%
6200 Foxhall Farm Road
Catonsville, MD 21228
Eugene M. Waldron, Jr. 10,000 8.89%
5309 Woodlawn Avenue
Chevy Chase, MD 20815
LFI Partnership 8,000(3) 7.11%
618 Indian Lane
Salisbury, MD 21801
Judith L. Stansbury 10,000(4) 8.89%
6200 Foxhall Farm Road
Catonsville, MD 21228
Executive Officers and Directors as a Group 77,500 68.89%
</TABLE>
34
<PAGE>
- --------
(1) Includes 6,000 shares held by LFI Partnership, of which Mr. Lerch is a
general partner. Also includes 2,000 shares held by Mr. Lerch's wife. Mr.
Lerch disclaims beneficial ownership as to the shares held by his wife.
(2) Includes 5,000 shares held by Mr. Stansbury's wife, Judith L. Stansbury.
Mr. Stansbury disclaims beneficial ownership as to the shares held by his
wife.
(3) Includes 2,000 shares held by John R. Lerch, the general partner of LFI
Partnership.
(4) Includes 5,000 shares held by Mrs. Stansbury's husband, Henry H. Stansbury.
Mrs. Stansbury disclaims beneficial ownership as to the shares held by her
husband.
Directors and officers of Bay National Corporation have indicated their
intention to purchase approximately 100,000 of the shares in the offering,
although they will not be obligated to purchase any shares. The directors and
officers may purchase additional shares in the offering if necessary to permit
Bay National Corporation to complete the minimum offering of 900,000 shares,
and they may purchase additional shares even if Bay National Corporation sells
the minimum offering. Any shares purchased by the directors and officers in
excess of their original commitments will be purchased for investment and not
with a view to the resale of those shares.
CERTAIN TRANSACTIONS
Prior to this offering, the organizers of Bay National Corporation and Bay
National Bank and certain other investors purchased an aggregate of 112,500
shares of our common stock at a purchase price of $10.00 per share. These
shares were issued without registration under the Securities Act of 1933, as
amended, in reliance of the exemption provided by Section 4(2) of the
Securities Act and the rules of the Securities and Exchange Commission
promulgated under Section 4(2). The primary purpose of this "organizational
offering" was to provide Bay National Corporation and Bay National Bank with
the capital necessary to fund some of our initial organizational and prepaid
operating expenses.
In recognition of the financial and organizational risk undertaken by the
purchasers in the organizational offering, each purchaser in the organizational
offering received, for no additional consideration, a warrant to purchase one
share of common stock at $10.00 per share for every two shares that they
purchased in the organizational offering. As a result, we issued warrants to
purchase an aggregate of 56,250 shares of common stock to the purchasers in the
organizational offering.
The warrants become exercisable on the later of the date that Bay National
Bank opens for business or one year from the termination date of this offering
and are exercisable in whole or in part until that date which is five years
from the date of this prospectus. The warrants and the shares issuable upon the
exercise of the warrants are transferrable subject to compliance with
applicable securities laws. If the OCC issues a capital directive or other
order requiring Bay National Bank to obtain additional capital, the warrants
are forfeited if not immediately exercised.
Director John R. Lerch owns a 50% interest in the property being leased
for Bay National Bank's Salisbury, Maryland branch office. Pursuant to that
lease, which is for a five-year term and commenced as of September 1, 1999, Bay
National Corporation agreed to pay Mr. Lerch and his partner monthly rent of
approximately $1,980 plus all real estate taxes and utilities. We believe that
the lease rate is at fair market value, based, in part, on an evaluation of the
lease terms by William E. Martin of ERA Martin Associates, a Salisbury-based
real estate brokerage firm. We engaged Mr. Martin to review the lease terms for
the purpose of determining whether the terms were consistent with the lease
terms for similar properties in the downtown Salisbury area.
We anticipate that our directors and officers and the business and
professional organizations with which they are associated will have banking
transactions with Bay National Bank in the ordinary course of business. It will
be our policy that any loans and loan commitments will be made in accordance
with applicable laws and on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons of comparable credit standing. Loans to
directors and officers must comply with Bay National Bank's lending policies
and statutory lending limits, and directors with a personal interest in any
loan application will be excluded from considering any such loan application.
35
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of nine million (9,000,000) shares
of common stock, $0.01 par value, and one million (1,000,000) shares of
preferred stock, $0.01 par value. As of the date of this prospectus, 112,500
shares of common stock are issued and outstanding and held by 23 stockholders
of record. The following is a summary of the terms of the common stock and
preferred stock. You may refer to our charter and bylaws, copies of which are
available upon request for inspection, for further information.
In general, stockholders or subscribers for our stock have no personal
liability for the debts and obligations of Bay National Corporation because of
their status as stockholders or subscribers, except to the extent that the
subscription price or other agreed consideration for the stock has not been
paid.
COMMON STOCK
We are authorized to issue nine million (9,000,000) shares of common
stock, par value $0.01 per share. Upon completion of the offering, including
the shares of common stock currently issued and outstanding, a minimum of
1,012,500 and a maximum of 1,612,500 shares of common stock will be issued and
outstanding. The outstanding shares of common stock currently are, and the
shares of common stock to be issued in the offering will be, upon payment as
described in this prospectus, fully paid and nonassessable. Subject to all the
rights of holders of any other class or series of stock, holders of common
stock are entitled to receive dividends if and when the Board of Directors of
Bay National Corporation declares dividends from funds legally available. In
addition, holders of common stock share ratably in the net assets of Bay
National Corporation upon the voluntary or involuntary liquidation, dissolution
or winding up of Bay National Corporation, after distributions are made to
anyone with more senior rights.
In general, each outstanding share of common stock entitles the holder to
vote for the election of directors and on all other matters requiring
stockholder action, and each share is entitled to one vote. There is no
cumulative voting in the election of directors, which means that the holders of
a majority of the outstanding shares of common stock can elect all of the
directors then standing for election and the holders of the remaining shares
will not be able to elect any directors.
Holders of common stock have no conversion, sinking fund, redemption
rights or preemptive rights to subscribe to any securities of Bay National
Corporation or Bay National Bank.
Our charter grants to the board of directors the right to classify or
reclassify any unissued shares of common stock from time to time by setting or
changing the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption. Accordingly, the board of directors could authorize
the issuance of additional shares of common stock with terms and conditions
which could have the effect of discouraging a takeover or other transaction
which some of our stockholders might believe to be in their best interests or
in which they might receive a premium for their shares of common stock over the
market price of such shares. As of the date hereof, we have no plans to
classify or reclassify any unissued shares of the common stock.
PREFERRED STOCK
We are authorized to issue one million (1,000,000) shares of preferred
stock, par value $0.01 per share. Shares of preferred stock may be issued from
time to time by the board of directors in one or more series. Prior to issuance
of shares of each series of preferred stock, the board of directors is required
by the Maryland General Corporation Law ("MGCL") to fix for each series the
designation, preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption. The board of directors could authorize the issuance
of shares of preferred stock with terms and conditions which could have the
effect of discouraging a takeover or other transaction which some of our
stockholders might believe to be in their best interests or in which they might
receive a premium for their
36
<PAGE>
shares of common stock over the market price of such shares. As of the date
hereof, we have no present plans to issue any preferred stock.
ANTI-TAKEOVER PROVISIONS
EXTRAORDINARY TRANSACTIONS. Pursuant to the MGCL, a corporation generally
cannot amend its charter (except in compliance with specific provisions of the
MGCL), consolidate, merge, sell, lease or exchange all or substantially all of
its assets, engage in a share exchange or liquidate, dissolve or wind-up unless
such acts are approved by the affirmative vote of at least two-thirds of the
shares entitled to vote on the matter, unless a lesser or greater percentage is
set forth in the corporation's charter. Our charter requires that some of these
matters be approved by the affirmative vote at least 80% of all the votes
entitled to be cast.
CLASSIFICATION OF THE BOARD OF DIRECTORS. Our charter and bylaws provide
that we shall have at least three (3) directors, and that the number of
directors may be increased or decreased by the board of directors. As of the
date of this prospectus, the board of directors has set the number of directors
at 14. At the first annual meeting of the stockholders, the directors will be
divided into three classes -- Class A, Class B and Class C -- each class to
consist of an equal number of directors, or as nearly equal as possible. Each
director will serve for a term ending on the date of the third annual meeting
following the annual meeting at which such director was elected. However, the
Class A directors first chosen will hold office for one year or until the first
annual meeting following their election, the Class B directors first chosen
will hold office for two years or until the second annual meeting following
their election and the Class C directors first chosen will hold office for
three years or until the third annual meeting following their election. We
believe that classification of the board of directors will help to assure the
continuity and stability of Bay National Corporation's business strategies and
policies as determined by the board of directors.
REMOVAL OF DIRECTORS. Our charter and bylaws provide that a director may
only be removed by the affirmative vote of at least 80% of the votes entitled
to be cast on the matter. Furthermore, the MGCL provides that if a
corporation's directors are divided into classes, a director may only be
removed for cause.
SUMMARY OF ANTI-TAKEOVER PROVISIONS. The above-described provisions
included in our charter and bylaws are designed to encourage potential
acquirors to negotiate directly with our board of directors and to discourage
takeover attempts. Such provisions may discourage non-negotiated takeover
attempts which certain stockholders could deem to be in their best interests.
For example, the classified director provision could have the effect of
making the removal of incumbent directors more time consuming and difficult,
which could discourage a third party from making a tender offer or otherwise
attempting to obtain control of Bay National Corporation, even though such an
attempt might be beneficial to Bay National Corporation and its stockholders.
In general, more than one annual meeting of stockholders will be required to
effect a change in a majority of the board of directors. Thus, the classified
board provision could increase the likelihood that incumbent directors will
retain their positions. Holders of common stock have no right to cumulative
voting for the election of directors. Consequently, at each annual meeting of
stockholders, the holders of a majority of the shares of common stock will be
able to elect all of the successors of the class of directors whose term
expires at that meeting.
The charter and bylaw provision that directors may be removed only by the
affirmative vote of at least 80% of the votes entitled to be cast on the
matter, the provision of the MGCL that provides that class directors may only
be removed for cause and the provision in the Bylaws authorizing the board of
directors to fill vacant directorships, precludes stockholders from removing
incumbent directors except for cause and upon a substantial affirmative vote
and filling the vacancies created by such removal with their own nominees.
BUSINESS COMBINATIONS. Under the MGCL, certain "business combinations"
between a Maryland corporation and an "Interested Stockholder" (as described in
the MGCL) are prohibited for five years after the most recent date on which the
Interested Stockholder became an Interested Stockholder, unless an exemption
37
<PAGE>
is available. Thereafter a business combination must be recommended by the
board of directors of the corporation and approved by the affirmative vote of
at least: (i) 80% of the votes entitled to be cast by holders of outstanding
voting shares of the corporation and (ii) two-thirds of the votes entitled to
be cast by holders of outstanding voting shares of the corporation other than
shares held by the Interested Stockholder with whom the business combination is
to be effected, unless the corporation's stockholders receive a minimum price
(as described in the MGCL) for their shares and the consideration is received
in cash or in the same form as previously paid by the Interested Stockholder
for its shares. These provisions of Maryland law do not apply, however, to
business combinations that are approved or exempted by the board of directors
prior to the time that the Interested Stockholder becomes an Interested
Stockholder. They also do not apply if the company has fewer than 100
beneficial owners of stock.
CONTROL SHARE ACQUISITIONS. The MGCL provides that "control shares" of a
Maryland corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by a vote of two-thirds of the shares
entitled to be voted on the matter, excluding shares of stock owned by the
acquiror or by officers or directors who are employees of the corporation.
"Control shares" are voting shares of stock which, if aggregated with all other
such shares of stock previously acquired by the acquiror, or in respect of
which the acquiror is able to exercise or direct the exercise of voting power
except solely by virtue of a revocable proxy, would entitle the acquiror to
exercise voting power in electing directors within one of the following ranges
of voting power: (i) one-fifth or more but less than one-third; (ii) one-third
or more but less than a majority or (iii) a majority of all voting power.
Control shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained stockholder approval. A "control
share acquisition" means the acquisition of control shares, subject to certain
exceptions.
A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses and delivery of an "acquiring person statement"), may compel the
corporation's board of directors to call a special meeting of stockholders to
be held within 50 days of demand to consider the voting rights of the shares.
If no request for a meeting is made, the corporation may itself present the
question at any stockholders' meeting.
Unless the charter or bylaws provide otherwise, if voting rights are not
approved at the meeting or if the acquiring person does not deliver an
acquiring person statement within 10 days following a control share acquisition
then, subject to certain conditions and limitations, the corporation may redeem
any or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to the
absence of voting rights for the control shares, as of the date of the last
control share acquisition or of any meeting of stockholders at which the voting
rights of such shares are considered and not approved. Moreover, unless the
charter or bylaws provides otherwise, if voting rights for control shares are
approved at a stockholders' meeting and the acquiror becomes entitled to
exercise or direct the exercise of a majority or more of all voting power,
other stockholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
TRANSFER AGENT
At present, we intend to serve as our own transfer agent after the
offering.
38
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
No market exists now for our shares, and we do not expect one to develop
in the foreseeable future. However, if a market did develop, the sale of a
substantial number of shares in that market could decrease the prevailing
market price of our stock and also could impair our ability to raise more funds
in the future. All shares sold in this offering will be freely tradeable
without restriction, except for any shares purchased by an "affiliate" of Bay
National Corporation. Those shares, along with the 112,500 shares of our common
stock sold in the organizational offering, may not be resold unless they are
registered or sold pursuant to an exemption from registration including that
set forth in Securities and Exchange Commission Rule 144. The shares sold in
the organizational offering may be sold without restriction beginning in
September 2001.
As of the date of this Prospectus, we have 112,500 shares of common stock
outstanding and have issued warrants to purchase up to 56,250 shares of common
stock. The shares issuable upon exercise of the warrants will constitute
"restricted securities" within the meaning of Rule 144.
All of Bay National Corporation's officers and directors are considered
"affiliates" within the meaning of Rule 144 and will, therefore, be subject to
the applicable resale limitations of that rule with respect to the shares
purchased in this offering. In general, the number of shares that can be sold
by each affiliate in brokers' transactions (as that term is used in Rule 144)
within any three month period may not exceed the greater of (i) one percent
(1%) of the outstanding shares as shown by the most recent report or statement
published by Bay National Corporation or (ii) the average weekly reported
volume of trading in the shares on all national securities exchanges and/or
reported through the automated quotation system of a registered securities
association during the four calendar weeks preceding the sale.
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will
be passed upon for Bay National Corporation by Ober, Kaler, Grimes & Shriver, a
Professional Corporation, Baltimore, Maryland.
EXPERTS
The audited financial statements of Bay National Corporation, Inc. dated
as of August 31, 1999, and for the period from June 3, 1999 (date of inception)
to August 31, 1999 included in this prospectus have been included in reliance
upon the report of Stegman & Company, independent certified public accountants,
and upon the authority of that firm as experts in accounting and auditing.
HOW TO FIND ADDITIONAL INFORMATION
We are a newly organized company and to date have not engaged in any
business operations other than those activities necessary to engage in this
offering and to organize and capitalize Bay National Corporation and Bay
National Bank. We are not currently required to file reports with the
Securities and Exchange Commission, although we will do so after this offering.
We will furnish stockholders with annual reports containing audited financial
statements. We may also send other reports to keep stockholders informed of our
business.
We have filed a Registration Statement on Form SB-2 with the Securities
and Exchange Commission, and this prospectus was included in the Registration
Statement. This prospectus does not contain all of the information contained in
the Registration Statement. You can read the Registration Statement and the
exhibits to the Registration Statement at the following public reference
facilities of the Securities and Exchange Commission: 450 Fifth Street, NW,
Room 1024, Washington, DC 20549; 7 World Trade Center, Suite 1300, New York,
New York 10048 and the Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. You can obtain copies of the Registration
Statement and the exhibits for a fee from the Public
39
<PAGE>
Reference Room of the Securities and Exchange Commission, 450 Fifth Street, NW,
Room 1024, Washington, DC 20549. You may call 1-800-SEC-0330 to obtain
information on the operation of the Public Reference Rooms. These materials
also may be accessed via the Securities and Exchange Commission's Internet
website. The address of that website is http://www.sec.gov.
No one is authorized to give you information that is not included in this
prospectus. If someone gives you any other information, you should not rely
upon it because we may not have authorized the use of that information. We may
deliver this prospectus to a prospective investor and/or sell shares of common
stock in this offering even if the information in this prospectus changes after
the date on the cover of the prospectus.
This prospectus is not an offer to sell the common stock and is not a
solicitation of an offer to buy the common stock in any state where the offer
or sale is not permitted.
40
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report .......................... F-2
Balance Sheet ......................................... F-3
Statement of Operations ............................... F-4
Statement of Changes in Stockholders' Equity .......... F-5
Statement of Cash Flows ............................... F-6
Notes to Financial Statements ......................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Bay National Corporation
Baltimore, Maryland
We have audited the accompanying balance sheet of Bay National Corporation
(a Development Stage Company) as of August 31, 1999 and the related statements
of operations, changes in stockholders' equity and cash flows for the period
June 3, 1999 (date of inception) to August 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bay National Corporation (a
Development Stage Company) as of August 31, 1999 and the results of operations
and cash flows for the period June 3, 1999 (date of inception) to August 31,
1999 in conformity with generally accepted accounting principles.
STEGMAN & COMPANY
Baltimore, Maryland
September 13, 1999
F-2
<PAGE>
BAY NATIONAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF AUGUST 31, 1999
<TABLE>
<S> <C>
ASSETS
Cash ........................................................................... $1,048,218
Equipment -- net ............................................................... 12,844
Other assets ................................................................... 25,325
----------
TOTAL ASSETS ................................................................ $1,086,387
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accrued payroll and payroll taxes ............................................ $ 11,535
Accrued professional fees .................................................... 59,761
----------
Total liabilities ........................................................... 71,296
----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par, 1,000,000 shares authorized; no
shares issued or outstanding ............................................... --
Common stock, $.01 par, 9,000,000 shares authorized, 112,500 shares issued and 1,125
outstanding
Surplus ...................................................................... 1,123,875
Deficit accumulated during the development stage ............................. (109,909)
----------
Total stockholders' equity .................................................. 1,015,091
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................. $1,086,387
==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
BAY NATIONAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JUNE 3, 1999
(DATE OF INCEPTION) TO AUGUST 31, 1999
<TABLE>
<S> <C>
REVENUES -- Interest income .............. $ 1,633
----------
EXPENSES:
Salaries and employee benefits ......... 39,468
Professional fees ...................... 59,761
Rent ................................... 3,801
Other .................................. 8,512
----------
Total expenses ........................ 111,542
LOSS BEFORE INCOME TAX BENEFIT ........... (109,909)
INCOME TAX BENEFIT ....................... --
NET LOSS ................................. $ (109,909)
==========
EARNINGS PER SHARE:
Basic net loss per share ............... $ (.98)
==========
Diluted net loss per share ............. $ (.98)
==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
BAY NATIONAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JUNE 3, 1999
(DATE OF INCEPTION) TO AUGUST 31, 1999
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE
COMMON DEVELOPMENT
STOCK SURPLUS STAGE
-------- ------------ --------------
<S> <C> <C> <C>
BALANCES AT JUNE 3, 1999 ............ $ -- $ -- $ --
ISSUANCE OF COMMON STOCK ............ 1,125 1,123,875 --
NET LOSS ............................ -- -- (109,909)
------ ---------- ----------
BALANCES AT AUGUST 31, 1999 ......... $1,125 $1,123,875 $ (109,909)
====== ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
BAY NATIONAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JUNE 3, 1999
(DATE OF INCEPTION) TO AUGUST 31, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................................. $ (109,909)
Adjustments to reconcile net loss to net cash used by operating activities:
Increase in other assets ................................................. (25,325)
Increase in accrued payroll and payroll taxes ............................ 11,535
Increase in accrued professional fees .................................... 59,761
----------
Net cash used by operating activities .................................. (63,938)
----------
CASH FLOWS FROM INVESTING ACTIVITIES --
Acquisition of equipment .................................................. (12,844)
----------
CASH FLOWS FROM FINANCING ACTIVITIES --
Issuance of common stock .................................................. 1,125,000
----------
NET INCREASE IN CASH ........................................................ 1,048,218
CASH AT END OF PERIOD ....................................................... --
CASH AT END OF PERIOD ....................................................... $1,048,218
==========
Supplemental Cash Flows information:
Interest payments ......................................................... $ --
==========
Income tax payments ....................................................... $ --
==========
</TABLE>
See accompanying notes.
F-6
<PAGE>
BAY NATIONAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 3, 1999
(DATE OF INCEPTION) TO AUGUST 31, 1999
1. NATURE OF BUSINESS
Bay National Corporation (the "Company") was incorporated on June 3, 1999
under the laws of the State of Maryland to operate as a bank holding company of
a proposed new national bank with the name Bay National Bank (the "Proposed
Bank"). It is intended that the Company will purchase all the shares of common
stock to be issued by the Proposed Bank. The Company's operations to date have
been limited to taking the necessary actions to organize and capitalize the
Company and the Proposed Bank. The Proposed Bank has not commenced operations
and will not do so unless the public offering of stock by the Company is
successful and the Proposed Bank meets the conditions of the Office of the
Comptroller of the Currency (the "OCC") to receive its charter authorizing it
to commence operations as a national bank, has obtained the approval of the
Federal Deposit Insurance Corporation to insure its deposit accounts, and meets
certain other regulatory requirements.
2. COSTS ASSOCIATED WITH START-UP ACTIVITIES
The Company expenses costs incurred during the start-up phase of
organization in accordance with The American Institute of Certified Public
Accountants' Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities."
3. INCOME TAXES
Federal and state income tax expense (benefit) consist of the following
for the period ended August 31, 1999:
<TABLE>
<S> <C>
Current federal income tax ............................ $--
Current state income tax .............................. --
Deferred federal income tax expense (benefit) ......... --
Deferred state income tax expense (benefit) ........... --
---
Total income tax expense (benefit) ................... $--
===
</TABLE>
The following chart is a summary of the tax effect of temporary
differences that give rise to a significant portion of deferred tax assets:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards ......... $ 19,400
Less valuation allowance ................. (19,400)
---------
Total deferred tax assets ................ $ --
=========
</TABLE>
No income tax benefit or deferred tax asset is reflected in the financial
statements. Deferred tax assets are recognized for future deductible temporary
differences and tax loss carryforwards if their realization is "more likely
than not".
F-7
<PAGE>
BAY NATIONAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LEASE COMMITMENTS
Operating lease commitments entered into by the Company bear initial terms
of five years. Minimum payments as of August 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 ................................. $175,830
2001 ................................. 175,830
2002 ................................. 175,830
2003 ................................. 175,830
2004 ................................. 173,930
Thereafter ........................... 43,092
--------
Total minimum lease payments ......... $920,342
========
</TABLE>
5. ISSUANCE OF COMMON STOCK
The Company offered and sold 112,500 shares of its common stock, $0.01 par
value per share, in a private placement organizational offering for a price of
$10 per share and received aggregate consideration of $1,125,000.
The planned initial public offering is on a best effort, minimum/maximum
basis, whereby no shares will be sold unless the Company receives subscriptions
for at least 900,000 shares at $10 per share and satisfies certain other
regulatory conditions. A maximum of 1,500,000 shares may be sold in the initial
public offering.
6. OPTIONS AND WARRANTS
The Board of Directors of the Company intends to adopt a stock option plan
as a performance incentive for its and the Proposed Bank's executive employees
and to encourage ownership of the Company's common stock by executive employees
and directors. The plan will require the prior approval of the OCC and the
approval of the Company's stockholders within one year from the plan's adoption
by the Board of Directors.
On August 31, 1999, the Board of Directors of the Company authorized the
issuance on September 10, 1999, to each stockholder of record of the Company on
August 31, 1999, of a warrant to purchase one share of common stock at $10 per
share for every two shares that the stockholder purchased in the organizational
offering. As a result, the Company issued 56,250 warrants. The warrants were
issued in recognition of the financial and organizational risk undertaken by
the purchasers in the organizational offering. The warrants become exercisable
on the later of the date that the Proposed Bank opens for business or one year
from the termination date of the Company's initial public offering, and are
exercisable in whole or in part until that date which is five years from the
date of the Company's prospectus.
7. EARNINGS PER SHARE
Basic net loss per common share is computed by dividing net loss available
to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted net loss per common share is computed by
dividing net loss available to common stockholders by the weighted average
number of common shares outstanding during the period, including any potential
dilutive common shares outstanding, such as options and warrants. No
consideration was given to the outstanding warrants because of their
anti-dilutive effect.
F-8
<PAGE>
[BAY NATIONAL CORPORATION LOGO APPEARS HERE.]
EXHIBIT A
SUBSCRIPTION AGREEMENT
This Subscription Agreement is entered into in connection with the offer
and sale (the "Offering") of up to 1,500,000 shares (the "Shares") of Common
Stock, par value $0.01 per share, of Bay National Corporation, a corporation
incorporated under the laws of the State of Maryland (the "Company"), for a
purchase price of $10.00 per share.
WITNESSETH:
1. PURCHASE OF SHARES. The undersigned agrees to purchase the number of
Shares set forth below and tenders the amount required to purchase such number
of Shares by check, bank draft or money order drawn to the order of "Brown
Brothers Harriman & Co., Escrow Agent for Bay National Corporation."
2. ACKNOWLEDGMENTS. The undersigned acknowledges and agrees that:
(a) The Company has established a minimum subscription of 1,000 shares
($10,000).
(b) The undersigned has received a copy of the Company's prospectus dated
(the "Prospectus"). By executing this Subscription Agreement, the undersigned
acknowledges and agrees to all of the terms and conditions of the Offering as
described in the Prospectus. This Subscription Agreement is not binding on
the Company until accepted by the Company and until the Company authorizes
the release of offering proceeds by the Escrow Agent. The Company reserves
the right to accept or reject, in whole or in part and at its sole
discretion, any Subscription Agreement. The Company shall notify the
subscriber by mail of its acceptance or rejection, in whole or in part, of
this Subscription Agreement.
(c) Subscriptions are binding on subscribers and may not be revoked by
subscribers except with the consent of the Company.
(d) The Company reserves the right to cancel accepted Subscription
Agreements at any time and for any reason until the satisfaction of the
conditions of the Offering.
(e) The Company may, in its sole discretion, allocate shares among
subscribers in the event of an oversubscription for the Shares.
3. REPRESENTATIONS AND WARRANTIES. The undersigned represents and warrants
that he/she is a resident of Delaware, the District of Columbia, Florida,
Maryland, New Jersey, Pennsylvania or Virginia.
THE COMMON STOCK DOES NOT REPRESENT A DEPOSIT ACCOUNT OR OTHER OBLIGATION
OF OUR PROPOSED BANKING SUBSIDIARY. THE COMMON STOCK IS NOT AND WILL NOT BE
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
BY EXECUTING THIS SUBSCRIPTION AGREEMENT, THE UNDERSIGNED ACKNOWLEDGES THAT THE
UNDERSIGNED IS NOT WAIVING ANY RIGHTS HE OR SHE MAY HAVE UNDER THE FEDERAL
SECURITIES LAWS, INCLUDING THE SECURITIES ACT OF 1933 AND THE SECURITIES
EXCHANGE ACT OF 1934.
A-1
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement on the date set forth below.
<TABLE>
<S> <C>
Date:--------------------------- --------------------------------- (SEAL)
Signature of Subscriber
--------------------------------- (SEAL)
- -------------------------------
Signature of Subscriber
Name of Entity, if applicable
---------------------------------
Printed Name(s) of Subscriber(s)
---------------------------------
Number of Shares Subscribed for:------- Street Address
(Minimum Subscription-1,000 Shares)
---------------------------------
City, State and ZIP Code
Total Subscription Price: $------------
($10.00 per Share)
</TABLE>
<TABLE>
<S> <C>
---------------------------------------------------
Social Security No. / Taxpayer Identification No.
Legal Form of Ownership (check one):
[ ] Individual ---------------------------------------------------
[ ] Joint Tenants with right of survivorship Telephone Number and Area Code
(both parties must sign)
[ ] Tenants by the Entireties (husband and
wife only) REGISTRATION INFORMATION:
[ ] Tenants-in-Common (both parties must (if different from above)
sign)
[ ] Community Property (one signature
required if interest held in one name, i.e., ---------------------------------------------------
managing spouse, two signatures required Name(s) of Registered Owner
if interest held in both names)
[ ] Partnership
[ ] Corporation ---------------------------------------------------
[ ] Limited Liability Company Street Address
[ ] Employee Benefit Plan
[ ] Individual Retirement Account
[ ] Trust ---------------------------------------------------
[ ] Uniform Gift to Minors City, State and ZIP Code
[ ] Other---------------------------
---------------------------------------------------
Social Security No. / Taxpayer Identification No.
---------------------------------------------------
Telephone Number and Area Code
</TABLE>
ACCEPTANCE
The foregoing subscription is hereby acknowledged and accepted as to
shares.
Date:________,______
Bay National Corporation
By:______________________________
AUTHORIZED OFFICER
A-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS. YOU MAY NOT ASSUME THAT WE HAVE AUTHORIZED ANY OTHER
INFORMATION OR REPRESENTATIONS. THE DELIVERY OF THIS PROSPECTUS AND THE SALE OF
OUR COMMON STOCK DOES NOT MEAN THAT THERE HAS BEEN NO CHANGE IN OUR AFFAIRS
SINCE THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
--------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary ..................................... 1
Risk Factors ........................................... 3
Forward Looking Statements ............................. 6
Bay National Corporation and
Bay National Bank ................................... 7
The Offering ........................................... 7
Use of Proceeds ........................................ 9
Capitalization ......................................... 11
Dividend Policy ........................................ 11
Proposed Business of Bay National Corporation .......... 11
Proposed Business of Bay National Bank ................. 12
Management's Plan of Operation ......................... 17
Supervision and Regulation ............................. 19
Management ............................................. 26
Securities Ownership of Certain Beneficial
Owners and Management ............................... 34
Certain Transactions ................................... 35
Description of Capital Stock ........................... 36
Shares Eligible for Future Sale ........................ 39
Legal Matters .......................................... 39
Experts ................................................ 39
How to Find Additional Information ..................... 39
Index to Financial Statements .......................... F-1
Exhibit A -- Subscription Agreement .................... A-1
</TABLE>
UNTIL , , ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATIONS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
[BAY NATIONAL CORPORATION LOGO APPEARS HERE.]
COMMON STOCK
$10.00 PER SHARE
900,000 SHARES (MINIMUM)
1,500,000 SHARES (MAXIMUM)
----------------------
PROSPECTUS
----------------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Article Seventh of the Company's Articles of Incorporation provides that
Bay National Corporation shall, to the full extent permitted by the Maryland
General Corporation Law, indemnify a director or officer of Bay National
Corporation who is or was a party to any proceeding by reason of the fact that
he is or was a director or officer of Bay National Corporation.
The Maryland General Corporation Law provides, in pertinent part, as
follows:
2-418 Indemnification of directors, officers, employees and agents.
(a) DEFINITIONS. -- In this section the following words have the
meanings indicated.
(1) "Director" means any person who is or was a director of a
corporation and any person who, while a director of a corporation, is or was
serving at the request of the corporation as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, other enterprise, or employee benefit plan.
(2) "Corporation" includes any domestic or foreign predecessor
entity of a corporation in a merger, consolidation, or other transaction in
which the predecessor's existence ceased upon consummation of the transaction.
(3) "Expenses" include attorney's fees.
(4) "Official capacity" means the following:
(i) When used with respect to a director, the office of
director in the corporation; and
(ii) When used with respect to a person other than a director
as contemplated in sub-section (j), the elective or appointive office in the
corporation held by the officer, or the employment or agency relationship
undertaken by the employee or agent in behalf of the corporation.
(iii) "Official capacity" does not include service for any
other foreign or domestic corporation or any partnership, joint venture, trust,
other enterprise, or employee benefit plan.
(5) "Party" includes a person who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(6) "Proceeding" means any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, or investigative.
II-1
<PAGE>
(b) (1) PERMITTED INDEMNIFICATION OF DIRECTOR. -- A corporation may
indemnify any director made a party to any proceeding by reason of service in
that capacity unless it is established that:
(i) The act or omission of the director was material to the
matter giving rise to the proceeding; and
1. Was committed in bad faith; or
2. Was the result of active and deliberate dishonesty;
or
(ii) The director actually received an improper personal
benefit in money, property, or services; or
(iii) In the case of any criminal proceeding, the director had
reasonable cause to believe that the act or omission was unlawful.
(2) (i) Indemnification may be against judgments, penalties, fines,
settlements, and reasonable expenses actually incurred by the director in
connection with the proceeding.
(ii) However, if the proceeding was one by or in the right of
the corporation, indemnification may not be made in respect of any proceeding in
which the director shall have been adjudged to be liable to the corporation.
(3) (i) The termination of any proceeding by judgment, order, or
settlement does not create a presumption that the director did not meet the
requisite standard of conduct set forth in this subsection.
(ii) The termination of any proceeding by conviction, or a
plea of nolo contendere or its equivalent, or an entry of an order of probation
prior to judgment, creates a rebuttal presumption that the director did not meet
that standard of conduct.
(c) NO INDEMNIFICATION OF DIRECTOR LIABLE FOR IMPROPER PERSONAL BENEFIT.
- -- A director may not be indemnified under subsection (b) of this section in
respect of any proceeding charging improper personal benefit to the director,
whether or not involving action in the director's official capacity, in which
the director was adjudged to be liable on the basis that personal benefit was
improperly received.
(d) REQUIRED INDEMNIFICATION AGAINST EXPENSES INCURRED IN SUCCESSFUL
DEFENSES. -- Unless limited by the charter:
(1) A director who has been successful, on the merits or otherwise,
in the defense of any proceeding referred to in subsection (b) of this section
shall be indemnified against reasonable expenses incurred by the director in
connection with the proceeding.
II-2
<PAGE>
(2) A court of appropriate jurisdiction upon application of a
director and such notice as the court shall require, may order indemnification
in the following circumstances:
(i) If it determines a director is entitled to reimbursement
under paragraph (1) of this subsection, the court shall order indemnification,
in which case the director shall be entitled to recover the expenses of securing
such reimbursement; or
(ii) If it determines that the director is fairly and
reasonably entitled to indemnification in view of all the relevant
circumstances, whether or not the director has met the standards of conduct set
forth in subsection (b) of this section or has been adjudged liable under the
circumstances described in subsection (c) of this section, the court may order
such indemnification as the court shall deem proper. However, indemnification
with respect to any proceeding by or in the right of the corporation or in which
liability shall have been adjudged in the circumstances described in subsection
(c) shall be limited to expenses.
(3) A court of appropriate jurisdiction may be the same court in
which the proceeding involving the director's liability took place.
(e) (1) DETERMINATION THAT INDEMNIFICATION IS PROPER. -- Indemnification
under subsection (b) of this section may not be made by the corporation unless
authorized for a specific proceeding after a determination has been made that
indemnification of the director is permissible in the circumstances because the
director has met the standard of conduct set forth in subsection (b) of this
section.
(2) Such determination shall be made:
(i) By the board of directors by a majority vote of a quorum
consisting of directors not, at the time, parties to the proceeding, or, if such
a quorum cannot be obtained, then by a majority vote of a committee of the board
consisting solely of two or more directors not, at the time, parties to such
proceeding and who were duly designated to act in the matter by a majority vote
of the full board in which the designated directors who are parties may
participate;
(ii) By special legal counsel selected by the board of
directors or a committee of the board by vote as set forth in subparagraph (i)
of this paragraph, or, if the requisite quorum of the full board cannot be
obtained therefor and the committee cannot be established, by a majority vote of
the full board in which directors who are parties may participate; or
(iii) By the stockholders.
(3) Authorization of indemnification and determination as to
reasonableness of expenses shall be made in the same manner as the determination
that indemnification is permissible. However, if the determination that
indemnification is permissible is made by special legal counsel, authorization
of indemnification and determination as to reasonableness of expenses shall be
made in the manner specified in subparagraph (ii) of paragraph (2) of this
subsection for selection of such counsel.
II-3
<PAGE>
(4) Shares held by directors who are parties to the proceeding may
not be voted on the subject matter under this subsection.
(f) (1) PAYMENT OF EXPENSES IN ADVANCE OF FINAL DISPOSITION OF ACTION. --
Reasonable expenses incurred by a director who is a party to a proceeding may be
paid or reimbursed by the corporation in advance of the final disposition of the
proceeding upon receipt by the corporation of:
(i) A written affirmation by the director of the director's
good faith belief that the standard of conduct necessary for indemnification by
the corporation as authorized in this section has been met; and
(ii) A written undertaking by or on behalf of the director to
repay the amount if it shall ultimately be determined that the standard of
conduct has not been met.
(2) The undertaking required by subparagraph (ii) of paragraph (1)
of this subsection shall be an unlimited general obligation of the director but
need not be secured and may be accepted without reference to financial ability
to make the repayment.
(3) Payments under this subsection shall be made as provided by the
charter, bylaws or contract or as specified in subsection (e) of this section.
(g) VALIDITY OF INDEMNIFICATION PROVISION.--The indemnification and
advancement of expenses provided or authorized by this section may not be deemed
exclusive of any other rights, by indemnification or otherwise, to which a
director may be entitled under the charter, the bylaws, a resolution of
stockholders or directors, an agreement or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
(h) REIMBURSEMENT OF DIRECTOR'S EXPENSES INCURRED WHILE APPEARING AS
WITNESS.-- This section does not limit the corporation's power to pay or
reimburse expenses incurred by a director in connection with an appearance as a
witness in a proceeding at a time when the director has not been made a named
defendant or respondent in the proceeding.
(i) DIRECTOR'S SERVICE TO EMPLOYEE BENEFIT PLAN.-- For purposes of this
section:
(1) The corporation shall be deemed to have requested a director to
serve an employee benefit plan where the performance of the director's duties to
the corporation also imposes duties on, or otherwise involves services by, the
director to the plan or participants or beneficiaries of the plan:
(2) Excise taxes assessed on a director with respect to an employee
benefit plan pursuant to applicable law shall be deemed fines; and
(3) Action taken or omitted by the director with respect to an
employee benefit plan in the performance of the director's duties for a purpose
reasonably believed by the director to be in the interest of the participants
and beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the corporation.
II-4
<PAGE>
(j) OFFICER, EMPLOYEE OR AGENT. -- Unless limited by the charter:
(1) An officer of the corporation shall be indemnified as and to the
extent provided in subsection (d) of this section for a director and shall be
entitled, to the same extent as a director, to seek indemnification pursuant to
the provisions of subsection (d);
(2) A corporation may indemnify and advance expenses to an officer,
employee, or agent of the corporation to the same extent that it may indemnify
directors under this section; and
(3) A corporation, in addition, may indemnify and advance expenses
to an officer, employee, or agent who is not a director to such further extent,
consistent with law, as may be provided by its charter, bylaws, general or
specific action of its board of director or contract.
(k) (1) INSURANCE OR SIMILAR PROTECTION. -- A corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee, or agent of the corporation, or who, while a director, officer,
employee, or agent of the corporation, is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
other enterprise, or employee benefit plan against any liability asserted
against and incurred by such person in any such capacity or arising out of such
person's position, whether or not the corporation would have the power to
indemnify against liability under the provisions of this section.
(2) A corporation may provide similar protection, including a trust
fund, letter of credit, or surety bond, not inconsistent with this section.
(3) The insurance or similar protection may be provided by a
subsidiary or an affiliate of the corporation.
(l) REPORT OF INDEMNIFICATION TO STOCKHOLDERS.--Any indemnification
of, or advance of expenses to, a director in accordance with this section, if
arising out of a proceeding by or in the right of the corporation, shall be
reported in writing to the stockholders with the notice of the next
stockholders' meeting or prior to the meeting.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses payable by the Company in connection with the
offering described in this Registration Statement (other than underwriting
discounts and commissions) are as follows:
SEC Registration Fee $ 4,170
Blue Sky Filing Fees and Expenses 10,000
(Including counsel fees)
Legal Fees 80,000
Broker-dealer Fees and Expenses -0-
Printing and Engraving 35,000
(Including Edgar filing expenses)
Accounting Fees and Expenses 5,000
Other Expenses 30,830
--------
*TOTAL $165,000
========
II-5
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
From June 18, 1999 to August 31, 1999, Bay National Corporation sold an
aggregate of 112,500 shares of its common stock to the organizers of Bay
National Corporation and Bay National Bank and certain other accredited
investors in a private placement. The price per share was $10.00 for an
aggregate purchase price of $1,125,000.
On August 31, 1999, Bay National Corporation's board of directors declared
a dividend to each owner of record of its common stock as of the close of
business on August 31, 1999, of a warrant to purchase one share of common stock
at $10.00 per share for every two shares of common stock held by the
stockholder. On September 10, 1999, Bay National Corporation issued warrants to
purchase 56,250 shares of common stock.
There were no underwriting discounts or commissions paid with respect to
any of the foregoing transactions. We believe that these transactions were
exempt from the registration requirements of the Securities Act of 1933 by
virtue of Section 4(2) of the Securities Act of 1933. None of these transactions
were conducted by any form of general solicitation or general advertising. In
connection with each transaction, Bay National Corporation took reasonable care
to assure that the investors were not underwriters within the meaning of Section
2(11) of the Securities Act by, among other things, making reasonable inquiry of
each investor to confirm that the investor took his or her securities for
investment only and not with a view to or for sale in connection with any
distribution of the securities and by placing appropriate legends on the share
certificates and warrants issued in these transactions.
<TABLE>
Item 27. Exhibits.
<S> <C>
3.1 Articles of Incorporation of Bay National Corporation*
3.2 Bylaws of Bay National Corporation*
4.1 Rights of Holders of Common Stock (as contained in the Articles of
Incorporation included herein as Exhibit 3.1)*
4.2 Form of Common Stock Certificate*
4.3 Form of Warrant*
5.1 Opinion of Ober, Kaler, Grimes & Shriver, a Professional Corporation, as to legality of
Common Stock
10.1 Form of Employment Agreement between Bay National Corporation and Hugh W. Mohler*
10.2 Form of Employment Agreement between Bay National Corporation and John S. DiPietro*
10.3 Form of Employment Agreement between Bay National Corporation and Thomas M. Neale*
10.4 Form of Employment Agreement between Bay National Bank and Hugh W. Mohler*
10.5 Form of Employment Agreement between Bay National Bank and John S. DiPietro*
10.6 Form of Employment Agreement between Bay National Bank and Thomas M. Neale*
10.7 Office Lease Agreement dated July 16, 1999 between Bay National Corporation and Joppa
Green II Limited Partnership*
10.8 Office Lease Agreement dated July 16, 1999 between Bay National Corporation and Joppa
Green II Limited Partnership*
10.9 Lease Agreement dated September 16, 1999 between Bay National Corporation and John R.
Lerch and Thomas C. Thompson*
21.1 Subsidiaries of Bay National Corporation*
23.1 Consent of Ober, Kaler, Grimes & Shriver, a Professional Corporation (contained in
their opinion included herein as Exhibit 5.1)
23.2 Consent of Stegman & Company
24 Power of Attorney*
27 Financial Data Schedules*
99.1 Form of Subscription Agreement*
99.2 Form of Escrow Agreement between Bay National Corporation and Brown
Brothers Harriman & Co.*
* Previously filed
</TABLE>
II-6
<PAGE>
Item 28. Undertakings.
The Registrant hereby undertakes that it will:
(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to: (i) include any
prospectus required by section 10(a)(3) of the Securities Act; (ii) reflect in
the prospectus any facts or events which, individually or together represent a
fundamental change in the information in the registration statement; and (iii)
include any additional or changed material information on the plan of
distribution.
(2) for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) file a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this pre-effective
amendment no. 2 to registration statement to be signed on its behalf by the
undersigned, in the City of Baltimore, Maryland on November 12, 1999.
BAY NATIONAL CORPORATION
By: /s/ Hugh W. Mohler
-----------------------------
Hugh W. Mohler
President
In accordance with the requirements of the Securities Act of 1933, this
pre-effective amendment no. 1 to registration statement has been signed by the
following persons in the capacities and on the dates stated.
NAME POSITION DATE
---- -------- ----
Director and President
/s/ Hugh W. Mohler (Principal Executive November 12, 1999
- --------------------------------- Officer)
Hugh W. Mohler
Treasurer
/s/ John S. DiPietro (Principal Accounting and November 12, 1999
- --------------------------------- Financial Officer)
John S. DiPietro
* Director November 12, 1999
- ---------------------------------
James C. Alban, Jr.
II-8
<PAGE>
Name Position Date
---- --------- ----
* Director November 12, 1999
- -------------------------
Carrol1 A. Bodie
* Director November 12, 1999
- -------------------------
Charles E. Bounds
Director
- -------------------------
Richard C. Hackney, Jr.
* Director November 12, 1999
- -------------------------
John R. Lerch
* Director November 12, 1999
- -------------------------
H. Victor Rieger, Jr.
* Director November 12, 1999
- -------------------------
Margaret Knott Riehl
* Director November 12, 1999
- -------------------------
William B. Rinnier
* Director November 12, 1999
- -------------------------
Edwin A. Rommel, III
* Director November 12, 1999
- -------------------------
Charles H. Salisbury
* Director November 12, 1999
- -------------------------
Henry H. Stansbury
Director
- --------------------------
Kenneth H. Trout
* Director November 12, 1999
- --------------------------
Eugene M. Waldron, Jr.
* By: /s/ Hugh W. Mohler
---------------------
Hugh W. Mohler
Attorney-in-fact
II-9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C>
3.1 Articles of Incorporation of Bay National Corporation*
3.2 Bylaws of Bay National Corporation*
4.1 Rights of Holders of Common Stock (as contained in the Articles of
Incorporation included herein as Exhibit 3.1)*
4.2 Form of Common Stock Certificate*
4.3 Form of Warrant*
5.1 Opinion of Ober, Kaler, Grimes & Shriver, a Professional Corporation, as to legality of
Common Stock
10.1 Form of Employment Agreement between Bay National Corporation and Hugh W. Mohler*
10.2 Form of Employment Agreement between Bay National Corporation and John S. DiPietro*
10.3 Form of Employment Agreement between Bay National Corporation and Thomas M. Neale*
10.4 Form of Employment Agreement between Bay National Bank and Hugh W. Mohler*
10.5 Form of Employment Agreement between Bay National Bank and John S. DiPietro*
10.6 Form of Employment Agreement between Bay National Bank and Thomas M. Neale*
10.7 Office Lease Agreement dated July 16, 1999 between Bay National Corporation and Joppa
Green II Limited Partnership*
10.8 Office Lease Agreement dated July 16, 1999 between Bay National Corporation and Joppa
Green II Limited Partnership*
10.9 Lease Agreement dated September 16, 1999 between Bay National Corporation and John R.
Lerch and Thomas C. Thompson*
21.1 Subsidiaries of Bay National Corporation*
23.1 Consent of Ober, Kaler, Grimes & Shriver, a Professional Corporation (contained in
their opinion included herein as Exhibit 5.1)
23.2 Consent of Stegman & Company
24 Power of Attorney*
27 Financial Data Schedule*
99.1 Form of Subscription Agreement*
99.2 Form of Escrow Agreement between Bay National Corporation and Brown
Brothers Harriman & Co.*
* Previously filed
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II-10
EXHIBIT 5.1
November 11, 1999
Bay National Corporation
2328 West Joppa Road
Suite 120
Baltimore, Maryland 21093
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
We have acted as special counsel to Bay National Corporation (the
"Company"), in connection with the preparation and filing with the Securities
and Exchange Commission (the "SEC") of a Registration Statement on Form SB-2
(the "Registration Statement") relating to the registration under the Securities
Act of 1933, as amended (the "Act"), of 1,500,000 shares of the Company's Common
Stock, $.01 par value per share (the "Securities"). Capitalized terms defined in
the Registration Statement and not otherwise defined herein are used herein with
the meanings as so defined.
In so acting, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Registration Statement and such corporate
records, agreements, documents and other instruments, and such certificates or
comparable documents of public officials, of officers and representatives of the
Company as we have deemed relevant or necessary as a basis for the opinions
hereinafter set forth.
In such examination, we have assumed without independent verification the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of documents submitted to us
as certified or photostatic copies and the authenticity of the originals of such
latter documents. As to all questions of fact material to this opinion that have
not been independently established, we have relied upon certificates or
comparable documents of officers of the Company, and have relied upon the
accuracy and completeness of the relevant facts stated therein without
independent verification.
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Based on the foregoing, and subject to the qualifications stated herein,
we are of the opinion that:
(i) the Securities have been duly authorized for issuance and sale, and
(ii) the Securities, when issued and sold by the Company in the manner and
for the consideration contemplated by the Registration Statement, will be
legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us under the heading "Legal
Matters" in the Prospectus. In giving such consent, we do not thereby admit that
we are in the category of persons whose consent is required under Section 7 of
the Act.
Very truly yours,
/s/ OBER, KALER, GRIMES & SHRIVER,
a Professional Corporation
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Registration Statement on Form SB-2 of our
report dated September 13, 1999 relating to the financial statements of Bay
National Corporation as of August 31, 1999 and for the period from June 3, 1999
(date of inception) to August 31, 1999 and to the reference of our Firm under
the caption "Experts" in the Prospectus.
/s/ Stegman & Company
Baltimore, Maryland
November 12, 1999
